Ms. Debbie, the sole shareholder of Shining Limited, a CCPC, has been considering selling her common shares to Let's-Make-a-Deal Ltd., a CCPC. However, Ms. Debbie recalls reading somewhere that one should compare a share sale with an asset sale to determine which would result in higher after-tax cash flow.
Ms. Debbie provides you with the following information:
(1) The cost of Ms. Debbie's common shares in Shining Limited was $120,000.
(2) Shining Limited pays tax at the overall rate of 20% on the first $300,000 (assuming that the other $100,000 is allocated to an associated corporation) of active business income, 33% on the additional active business income, and 40% on all other income, plus the 62/3% additional refundable tax on investment income. The corporation has a GRIP balance of nil.
(3) Ms. Debbie's combined federal and provincial personal tax rate is 46%, including a personal provincial tax on income rate of 17%. The provincial tax dividend tax credit is 62/3% of the grossed-up dividend from the LRIP and 12.1% of the grossed up dividend from the GRIP.
(4) Financial information concerning Shining Limited on December 31, 2008 is as follows:

(5) Shining Limited earned active business income of $50,000 during the year.
NOTE: The original cost of the building in Class 1 was $410,000. Book cost of $213,700 is net book value after accumulated amortization.
REQUIRED
(A) If Ms. Debbie sells all of the assets, except cash, to Let's-Make-a-Deal Ltd., pays the outstanding liabilities, and then winds up Shining Limited, what would be the net amount available for distribution to her? Show all computations.
(B) Determine the components of the distribution to Ms. Debbie.
(C) Determine the amount, including principal, Ms. Debbie would retain from this distribution.
(D) Determine a selling price for the Shining Limited shares that results in the same after-tax net cash retained as the net cash from sale of assets followed by a wind-up, as determined in Part (C).
(E) Based on the indicated fair market value of the net assets, what is the maximum price a Cana-dian-controlled private corporation should be willing to pay for the shares of Shining Limited? Assume that the CCPC pays tax at the low rate of 20% on all of its business income, that it uses an after-tax discount rate of 10%, and that it does not expect to sell the fixed assets of Shining Limited for a very long time. Also, assume that if the purchaser bought the assets, it would have to invest $23,000 in cash to meet working capital requirements.

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Cash (required as working capital) Inventory Building Note) S 23,000 58,000 41.000 154,000 S 54,000 50.000 210,000 213,700 195,000 440,000 5 489,700 S 839,000 Liabilities Current liabilities Future income taxes Paid-up capital Capital dividend account S 43,000 4,800 120,000 48,000 Retained earning. 273900 489.700