genyjoannerubiera
16.02.2022 •
Business
Princetown Incorporated has a $4.82 million basis in 88% of the outstanding stock of Merryvale Corporation. Merryvale manufactures Christmas decorations, cards, and wrapping paper. Princetown's board of directors recently learned that Merryvale is bankrupt. The board voted unanimously to dissolve the corporation and distribute all assets to Merryvale's creditors. What is the tax consequence to Princetown of the board's actions? Multiple Choice No loss recognition until Princetown actually disposes of the Merryvale stock. $4.82 million Section 1231 loss. $4.82 million capital loss.
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Ответ:
The correct answer is: the substitution effect.
Explanation:
The price of a product is inversely related to the quantity demanded. An increase in the price of the product decreases the purchasing power of the consumer.
So in case of a price rise, the consumers move to a product at a lower price. In other words, the consumers substitute a good at lower price.
The income and substitution effect causes the demand curve to be downward sloping.