There Are a Number of Key Tax Effects That Must

question 2

Essay

There are a number of key tax effects that must be considered during a business divestiture and acquisition, from the perspectives of both the vendor and the purchaser. Match the following tax considerations with the most appropriate answer from the list below. Use each answer only once.
Tax consideration:
1. A change in control will restrict the use of losses. _____
2. Capital gains and business income may occur in the business, reducing the after-tax proceeds. _____
3. The capital gain deduction may apply. _____
4. The cost base for assets is based on their market value. _____

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Definitions:

Interest Tax Savings

The reduction in tax payments resulting from the deduction of interest payments on debt from taxable income.

Discount Rate

In DCF analysis, the rate used to calculate the present worth of future cash flows.

NOPAT

NOPAT (Net Operating Profit After Taxes) is a financial metric that calculates a company's potential cash earnings if it had no debt, focusing on its operational efficiency.

Operating Capital

Funds that are used for daily operational activities of a business, essentially the short-term assets minus short-term liabilities.