Parent and Junior Form a Non-Unitary Group of Corporations

question 118

Multiple Choice

Parent and Junior form a non-unitary group of corporations.Parent is located in a state with an effective tax rate of 3%,while Junior's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities,the group should:

• A)Execute an intercompany loan, such that Junior pays deductible interest to Parent.
• B)Have Parent charge Junior an annual management fee.
• C)Shift Parent's high-cost assembly and distribution operations to Junior.
• D)None of the above is an effective technique.
• E)All of the above are effective techniques.

---

Definitions:

Natural Monopoly

A market condition where a single firm can supply a product or service at a lower cost than any potential competitor, often due to economies of scale.

Large Fixed Costs

Expenses that do not change in total regardless of changes in the volume of goods or services produced.

ATC

Average Total Cost, which is calculated by dividing the total cost of production by the quantity of output produced.

Price Elasticity Of Demand

The ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve.