{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

tax implication example - 50-30=$20M Taxes = gain x tax...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
M&A Tax Implications Example Given: $50M Purchase Price $30M BV of target’s assets 40M appraised value of target’s assets 35% Corp. tax rate Target has no debt What is implications to: 1) target shareholders 2) post-merger asset values 3) taxes to post-merger firm Under these conditions: A) Acquiring firm pays mostly stock B) Acquiring firm pays mostly cash/debt and buys target’s assets C) Acquiring firm pays mostly cash/debt and buys target’s stock and: i) records assets at target’s BV ii) records assets at target’s appraised value Answer: A) Nontaxable offer: 1) target S/Hs have no taxes at time of merger (only when sale – tax on gain where gain is equal to difference between Acquiring firm’s price and original target stock price it was bought at) 2) Assets = $30M 3) Deprec. Same as old schedule B) Taxable offer buying assets 1) Acquiring firm has to pay taxes (or target does which means acq. Firm). Gain = Purchase price(i.e. “PP”) – target’s BV of assets =
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 50-30=$20M Taxes = gain x tax rate = 20M x .35 = $7M Target gets PP – taxes = $50 – 7 = $43M to distribute to target S/Hs. Then target has to pay individual taxes on their gain on their stock. 2,3) Asset Value written up to appraised value =$40M Goodwill = PP – Appraised value of assets = $50-40=$10M, amortized over 15 years for income tax purposes. C) Taxable offer buying stock i) Records assets at target’s BV 1) same as B(1) 2) Assets = target BV = $30M 3) No goodwill created. Target SHs pay tax at individual level. No tax advantage for Acquiring firm. ii) Records assets at target’s BV 1) This is where we are not sure – the textbook gives 2 different answers! p. 921’s example implies gain = PP – Appraised Value and p. 922 table says gain = Appraised Value – BV. So you won’t be tested on this part!!! 2) Assets = $40M 3) Goodwill created = PP-Appraised Value = 50-40=$10M...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern