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:

Epidermis

(1) An outer layer of cells that covers the body of plants and functions primarily for protection. (2) The outer layer of vertebrate skin.

Nematode

Unsegmented worms of the phylum Nematoda, including both parasitic and free-living species that can be found in various environments.

Ectoderm

The outer germ layer of the early embryo; gives rise to the skin and nervous system. Compare with mesoderm and endoderm.

Protostomes

Animals that belong to the Protostomia, one of the major animal clades. Include the annelids, arthropods, and mollusks. Compare with deuterostomes.