What Are the Tax Consequences to Parent Corporation When Parent

question 3

Essay

What are the tax consequences to Parent Corporation when Parent Corporation, which owns 75% of Subsidiary Corporation's single class of stock, purchases for cash the remaining 25% of the Subsidiary stock from three individual shareholders pursuant to a tender offer? Three months later as part of an approved plan of liquidation, Subsidiary's assets are distributed to Parent Corporation in exchange for all of Subsidiary's outstanding stock.

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Definitions:

External Financing

Funds raised from sources outside of the company, such as loans, investors, or grants, to support business activities.

Debt-Equity Ratio

The Debt-Equity Ratio is a measure of a company's financial leverage, indicating the proportion of equity and debt used to finance a company's assets.

Capital Intensity Ratio

A financial metric indicating the amount of capital needed per unit of revenue, typically used to assess the business model's reliance on physical capital.

Total Assets

Represents the sum of everything of value owned by a company, including cash, investments, property, and equipment.