Which two of these are required for an acquisition to be considered tax-free? I.The bidder must purchase the target firm for less than its current market value.
II.The acquisition must have a business purpose other than the avoidance of taxes.
III.The stockholders in the target firm must retain an equity interest in the bidder.
IV.The acquisition must be a lump sum cash transaction.
A)I and II only
B)III and IV only
C)II and III only
D)I and III only
E)II and IV only

Question

Quizplus · Accepted Answer

For an acquisition to be considered tax-free, it must have a business purpose other than the avoidance of taxes (II) and the stockholders in the target firm must retain an equity interest in the bidder (III). Purchasing the target firm for less than its current market value (I) and using a lump sum cash transaction (IV) are not required for an acquisition to be considered tax-free.

Which Two of These Are Required for an Acquisition to Be