Which of the Following Statements Regarding Mergers and Taxes Is

question 32

Multiple Choice

Which of the following statements regarding mergers and taxes is false?

• A) Carryback and carryforward provisions essentially deliver the benefits of conglomeration to a small firm with volatile earnings.
• B) It might appear that a conglomerate has a tax advantage over a single-product firm simply because losses in one division can offset profits in another division.
• C) Companies with current-year losses can also use them to offset earnings (carryback) for the twenty prior years.
• D) The IRS will disallow a tax break if it can show that the principal reason for a takeover is tax avoidance, so it is unlikely that the tax advantage could, by itself, be a valid reason to acquire another firm.

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Definitions:

Warehouse

A storage facility for housing goods in large quantities, typically before they are distributed for sale.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated as net profit divided by the cost of the investment.

Margin

The difference between the selling price of a product and the cost of the product, representing profitability.

Sales

The total revenue earned from the sale of goods or services related to a company's primary operations.