NewCo Received All of DebtCo's Assets (Value $600,000, Basis $150,000)

question 14

Essay

NewCo received all of DebtCo's assets (value $600,000, basis $150,000) through a Federal court proceeding. The creditors of DebtCo received NewCo voting stock in exchange for their debt, representing 100% of the total liabilities ($500,000). Also transferred to NewCo are DebtCo's tax attributes, including the following carryovers: capital losses $70,000, NOL $300,000, and general business credits $80,000.

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Definitions:

Optimal Capital Structure

The most favorable mix of debt and equity financing that minimizes the cost of capital and maximizes the value of the firm.