Jeffrey wants to start a new business selling high performance golf balls called “Swift Performance.” He is trying to decide whether to organize the business as a corporation or as a partnership flow through entity. To make the decision under different conditions, he gathers some information to make educated assessments about his investment horizon, expected before-tax rate of return on investment, and various tax rates. He expects his before-tax rate of return for the business will be 8% per year regardless of how he organizes the business. Further, he expected the corporate tax rate to stay steadily at 21% whereas he expects the tax rate on personal income, tp, and capital gains, tcg, to be 30% and 15%, respectively. Based on these expectations, Jeffrey enlists your help to answer whether the following statements about his choice between operating as a corporation or partnership are true or false. The annualized after-tax rate of return to investing in the partnership form decreases with the length of the partner’s holding period. Use either features of the corporate form formula or numerical examples to support your “true” or “false” answer.

Answer rating: 100% (QA)

Solution The Answer is FALSE There are some reasons that may consider for clarifying the answer ad these reasons are as follows 1 In the corporate it ... View the full answer