Hard Corporation has net assets valued at $900,000 and an NOL of $450,000.On January 3 of the current year,Hard is acquired by Soft Corporation in a restructuring qualifying as a tax-free reorganization that causes an ownership shift of 80 percentage points for the Hard shareholders.Soft uses a calendar year for tax purposes.Assuming that the long-term tax-exempt rate is 5%,what is the maximum amount Soft should be willing to pay Hard for its NOL,if Soft uses a 10% discount factor (which is 6.145)for this decision?

Question

Quizplus · Accepted Answer

The maximum amount Soft should be willing to pay for Hard's NOL can be calculated using the following formula:

Maximum offer = (NOL * long-term tax-exempt rate)/ (1-ownership percentage * discount factor)

Plugging in the given values:

Maximum offer = ($450,000 * 0.05) / (1 - 0.8 * 0.6145) = $276,525

Therefore, Soft should be willing to pay a maximum of $276,525 for Hard's NOL. Option B is the closest answer.

Hard Corporation Has Net Assets Valued at $900,000 and an NOL