A selling company is a regular C corporation. Given the following data calculate the net proceeds...
A selling company is a regular C corporation. Given the following data calculate the net proceeds to the shareholders of the selling firm if the buyer makes a stock acquisition versus an acquisition of assets.
Purchase price, stock $250
Purchase price, assets 250
Liabilities of seller 100
Basis in assets (seller) 150
Basis in shares (shareholders of seller) 125
Marginal corporate tax rate (federal and state) 35%
Individual capital gains tax rate (federal and state) 24%
Homework Answers
net proceeds to the shareholders of the selling firm if the buyer makes a stock acquisition:
net proceeds = Purchase price of stock - [Purchase price of stock - Basis in shares (shareholders of seller)]*[1- Individual capital gains tax rate (federal and state)]
net proceeds = $250 - ($250 - $150)*(1 - 0.24) = $250 - $100*0.76 = $250 - $76 = $174
net proceeds to the shareholders of the selling firm if the buyer makes an acquisition of assets:
net proceeds = [(Purchase price of assets - Liabilities of seller)*(1- Marginal corporate tax rate (federal and state))] - Basis in shares (shareholders of seller)
net proceeds = [($250 - $100)*(1 - 0.35)] - $125 = ($150*0.65) - $125 = $97.5 - $125 = -$27.5
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