Ted and Alice Were in the Process of Negotiating a Divorce

question 83

Essay

Ted and Alice were in the process of negotiating a divorce agreement.They own bonds with a basis of $800,000 and a fair market value of $800,000.They also own common stock with a basis of $500,000 and a fair market value of $800,000.Alice is trying to decide whether to bargain to receive the bonds or the stock.Whichever of the assets she receives,she will sell it to start a new business and to purchase a house.She knows that Ted would prefer to receive the bonds,but she is not sure why.
a.Why do you suppose that Ted prefers to receive the bonds?
b.If Ted is bargaining to receive the bonds,what additional consideration should Alice receive?

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Definitions:

Common Value Auctions

Auctions in which the item for sale has the same value to all bidders, but the bidders have different information about the item's actual value.

True Value

The actual, inherent worth of an item or phenomenon, often considered in contrast to its market value or perceived value.

Bidders

Individuals or entities that offer to pay a certain price for goods, services, or assets in an auction or competitive bidding process.

Common-value Auction

An auction format where the item for sale has a value that is essentially the same for all bidders, but the bidders may have different information about that value.