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Dave, Erica, and Faye are all unrelated. Each has owned 100 shares of News Corporation stock for five years and each has a $180,000 basis in those 100 shares. News Corporation's E&P is $720,000. News redeems all 100 of Dave's shares for $300,000, their FMV.
a)What is the amount and character of Dave's recognized gain or loss? What basis do Erica and Faye have in their remaining shares? What effect does the redemption have on News's E&P?
b)Assuming instead that Dave is Erica's son, answer the questions in part (a)again.
Midpoint Method
A technique used in economics to calculate the percentage change in variables, offering a more precise measure of elasticity between two points.
Price Elasticity
A measure of how much the quantity demanded or supplied of a good changes in response to a change in price.
Total Revenue
The total income received by a firm from selling its goods or services.
Total Revenue
The total amount of money generated by the sale of goods or services before any expenses are subtracted.
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