Deal Ltd. plans to acquire Shining Ltd.'s assets or shares with the intention of continuing the business.
Question:
Deal Ltd. plans to acquire Shining Ltd.'s assets or shares with the intention of continuing the business. The company has a $48,000 capital dividend account on December 31$, 2020. They have $10,000 of GRIP and no RDTOH balance at the beginning of the year.
REQUIRED
a) Determine the cash that Ms. Debbie would retain, after taxes, if she decides to sell the corporate assets, wind up the corporation, and distribute the corporate cash to herself.
b) What is the minimum amount that Deal Ltd. would have to offer for Ms. Debbie's shares that would lead to her accepting a share purchase as opposed to an asset purchase?
c) If Ms. Debbie were to sell her shares to Deal Ltd., is there anything she can do prior to sale to maximize the after-tax cash she will receive? (Hint: Deal Ltd. is a public corporation, and thus cannot use the capital dividend account)
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates