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:

Heavy Drinking

The consumption of alcoholic beverages in quantities that exceed moderate drinking guidelines, potentially leading to health and social problems.

Opiate Family

A group of drugs, derived from the opium poppy, used primarily for pain relief but which can also lead to addiction and abuse.

Methadone

A heroin replacement used to treat heroin addicts, often to reduce the craving after initial withdrawal symptoms have abated. Methadone therapy appears to work best in conjunction with good individual and group psychological intervention programs, as well as ongoing peer support.

Morphine

A powerful opiate analgesic drug derived from the opium poppy, used to relieve severe pain.