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Prior to election of section 338:

S Assets = $5B, All the assets are in U.S

S Liabilities =

$4B

S has $400 million of NOLs that can be used to offset any gain from a 338 election.

S's NOLs would have no value absent a 338 election.

Any step-up in tax basis results in additional tax depreciation and amortization using straight line over a period of 15 years. T is optimistic about its profitability and thus expects to face a 35% tax rate immediately after the acquisition and thereafter assuming a 10% discount rate.

a. What would be the tax cost of the 338 election?

b. What would be the present value of the tax benefit of such an election?

c. Would T be wise to make a 338 election with respect to S?

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