Present Value Tables needed for this question. Hair Corporation would like to acquire Scalp Corporation on August 31 because Scalp has an $8,000 capital loss carryover and $32,200 of general business credits that Hair could readily use. At this time, Scalp has assets valued at $1 million (basis of $1.1 million). While Hair is not interested in having Scalp's shareholders become its shareholders, it is interested in expanding into Scalp's business line. Hair thinks it could turn Scalp around with uptodate equipment. Thus, Hair would like to sell Scalp's assets immediately, recognize the loss to offset its expected gains, and then use the proceeds to purchase new equipment. Hair is a very profitable corporation and is also expecting to have at least $50,000 of capital gains and $3 million in other income for the current year. Hair is proposing paying cash for all of Scalp's assets and liabilities. The Federal longterm taxexempt rate is currently 3%, and Hair's discount factor for making investment decisions is 15%.
a. Discuss the proposed restructuring and what steps should be taken to maximize Hair's and Scalp's benefits from the reorganization.
b. What is the amount of Scalp's carryover loss that Hair may take in the current year assuming it meets all other tax law requirements?
c. As of January 1 next year, what is the present value of carryovers remaining after the current year's utilization?

Question

Present Value Tables needed for this question. Hair Corporation would like to acquire Scalp Corporation on August 31 because Scalp has an $8,000 capital loss carryover and $32,200 of general business credits that Hair could readily use. At this time, Scalp has assets valued at $1 million (basis of $1.1 million). While Hair is not interested in having Scalp's shareholders become its shareholders, it is interested in expanding into Scalp's business line. Hair thinks it could turn Scalp around with up­to­date equipment. Thus, Hair would like to sell Scalp's assets immediately, recognize the loss to offset its expected gains, and then use the proceeds to purchase new equipment. Hair is a very profitable corporation and is also expecting to have at least $50,000 of capital gains and $3 million in other income for the current year. Hair is proposing paying cash for all of Scalp's assets and liabilities. The Federal long­term tax­exempt rate is currently 3%, and Hair's discount factor for making investment decisions is 15%.
a. Discuss the proposed restructuring and what steps should be taken to maximize Hair's and Scalp's benefits from the reorganization.
b. What is the amount of Scalp's carryover loss that Hair may take in the current year assuming it meets all other tax law requirements?
c. As of January 1 next year, what is the present value of carryovers remaining after the current year's utilization?

Quizplus · Accepted Answer

The Answer of Present Value Tables needed for this question. Hair Corporation would like to acquire Scalp Corporation on August 31 because Scalp has an $8,000 capital loss carryover and $32,200 of general business credits that Hair could readily use. At this time, Scalp has assets valued at $1 million (basis of $1.1 million). While Hair is not interested in having Scalp's shareholders become its shareholders, it is interested in expanding into Scalp's business line. Hair thinks it could turn Scalp around with up­to­date equipment. Thus, Hair would like to sell Scalp's assets immediately, recognize the loss to offset its expected gains, and then use the proceeds to purchase new equipment. Hair is a very profitable corporation and is also expecting to have at least $50,000 of capital gains and $3 million in other income for the current year. Hair is proposing paying cash for all of Scalp's assets and liabilities. The Federal long­term tax­exempt rate is currently 3%, and Hair's discount factor for making investment decisions is 15%.
a. Discuss the proposed restructuring and what steps should be taken to maximize Hair's and Scalp's benefits from the reorganization.
b. What is the amount of Scalp's carryover loss that Hair may take in the current year assuming it meets all other tax law requirements?
c. As of January 1 next year, what is the present value of carryovers remaining after the current year's utilization?

Present Value Tables Needed for This Question