Question

The following table contains the facts for this problem. You are working for Cabo (the acquirer), who wants to purchase Golden Gate. Cabo is considering a taxable stock purchase at a price of $ 150,000 or some type of tax- free acquisition.
Based on the facts and the data in the table,
a. What is Golden Gate shareholders’ after- tax wealth under a Section 368 “ A” structure based on the terms presented in the table?
b. What is Golden Gate shareholders’ after- tax wealth under a Section 368 “ B” structure based on the terms presented in the table?
c. What is Golden Gate shareholders’ after- tax wealth under a Section 351 structure based on the terms presented in the table?
d. At what pretax purchase price in a Section 368 “A” will the shareholders of Golden Gate be indifferent, relative to a taxable stock purchase at $ 150,000?
e. At what pretax purchase price in a Section 368 “B” will the shareholders of Golden Gate be ­indifferent, relative to a taxable stock purchase at $ 150,000?
f. At what pretax purchase price in a Section 351 are the shareholders of Golden Gate indifferent, relative to a taxable stock purchase at $ 150,000?
g. Ignoring nontax costs, will Cabo prefer one of the tax- free structures relative to the taxable stock acquisition at $ 150,000? Why?
h. How large would the nontax costs of a Section 368 B have to be to cause Cabo to prefer the taxable stock acquisition at a price of $ 150,000 relative to the Section 368 B at the pretax price computed in part f?


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  • CreatedAugust 06, 2015
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