Suppose that the tax rate on personal income, tp, is equal to 40%; the corporate tax rate,
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a. The annualized after tax rate of return to investing in the corporate form increases with the length of the investor’s holding period. Explain.
b. The annualized after tax rate of return to investing in the partnership form increases with the length of the partner’s holding period. Explain.
c. If a corporation paid out its entire after tax profits as fully taxable dividends each year, shareholders would realize a lower before tax rate of return than if the corporation retained the after tax profits. Explain.
d. Because the corporate tax rate is below the personal tax rate, the corporate form is always preferred to the partnership form.
e. Because corporate income is subject to two levels of taxation, the partnership form is always preferred to the corporate form. Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
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Related Book For
Taxes And Business Strategy A Planning Approach
ISBN: 9780132752671
5th Edition
Authors: Myron Scholes, Mark Wolfson, Merle Erickson, Michelle Hanlon
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