Present Value Tables Needed for This Question

question 83

Essay

Present Value Tables needed for this question. Tony is the sole shareholder of Create Corporation. He is a chemical engineer and has been working hard to create a unique product but has been unsuccessful. Thus, Create has accumulated an NOL of $420,000. This year she finally finds the right combination for a new cleaning product.
Predicting that Create will be very profitable next year, it borrows $250,000 to pay Tony the salary she rightly deserves. Next year, Create does become profitable, earning $100,000 before application of carryovers. Mega Corporation, a huge $50 million value, 25% combined state and Federal tax bracket) competitor, offers to purchase the patent from Tony for $1,050,000.
Knowing that Create's NOL should be useful to Mega, Tony suggests a restructuring where she receives $800,000 in Mega stock, Mega assumes all of Create's liabilities $250,000) plus $75,000 cash for the NOL. Mega counter offers with cash for the NOL to be determined), and $1,050,000 of stock. It will not assume any liabilities. How much would be the maximum cash offered by Mega for the NOL, assuming that Mega uses a 12% discount factor and the Federal long-term tax-exempt rate is 4%? If Tony accepts Mega's offer, what type of reorganization, if any, is this restructuring?

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Definitions:

Consistent Message

A communication strategy that ensures all marketing materials and messages are uniform across different mediums and channels.

Integrated Marketing Communications

A strategic approach that aims to ensure consistency of message and the complementary use of media to reinforce the customer's perception of a brand or product.

Sales Promotions

Short-term incentives designed to encourage the purchase or sale of a product or service.