Blitzer Corporation Is the Parent Corporation of a 10-Member Group

question 79

Essay

Blitzer Corporation is the parent corporation of a 10-member group that has filed consolidated tax returns for a number of years. Last year, the group sold all the stock of Wolf Corporation to Jerry Jensen. This year, Wolf Corporation reported a $300,000 NOL. Wolf's taxable income while a group member averaged $200,000 annually for the past five years but is expected to be only $50,000 next year due to start-up costs that will be incurred with the introduction of a new product line. Profits are expected to increase in each succeeding year. What issues should Blitzer have considered when trying to value Wolf's NOL prior to its sale? What tax issues should Wolf now consider when deciding how to use its NOL?

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Definitions:

Equity Offerings

The sale of equity or shares in a company to raise capital, usually through public offerings or private placements.

Debt Offerings

A way for companies to raise capital by issuing debt securities or bonds to investors, who in return receive interest payments.

Ultimate Return

The total return received from an investment, including all sources of income and capital gains, over the entire holding period.

Technical Analysis

The study of historical market data, including price and volume, to predict future market behavior primarily for trading decisions.