Ch 3 Deck 2

Question 1

Do S-Corps prefer the sale of their corporation to be made through a stock sale or a sale of assets?

Answer 1

may not care because of pass-through taxation

Question 2

Section 338(h)(10) election allows

Answer 2

a stock acquisition to be treated like an asset purchase

Question 3

Section 338(h)(10) is only available to buyers of

Answer 3

S-corps or subsidiaries of a consolidated group

Question 4

In a Section 338(h)(10) election, the buyer will be able to

Answer 4

take advantage of a stepped-up cost basis

Question 5

In a Section 338(h)(10) election the target will have to

Answer 5

pay tax on a gain from the asset sale

Question 6

a company restructures its capital set-up

Answer 6

recapitalization

Question 7

altering the proportion of capital from equity to capital from debt is an example of

Answer 7

recapitalization

Question 8

The Internal Revenue Code allows a corporation to make a tax-free acquisition of another corporation if the transaction

Answer 8

follows a technique described in the code

Question 9

IRC technique for tax free acquisition involves transferring buyer’s stock to target shareholders in exchange for

Answer 9

stock or assets of target

Question 10

the target merges into the buyer corporation

Answer 10

Type A reorganization

Question 11

in a type A reorganization, target merges into buyer corporation usually in exchange for

Answer 11

buyer stock or some other form of consideration

Question 12

In a Type A reorganization the target can also merge into

Answer 12

an LLC that is wholly owned by the buyer

Question 13

In a Type A reorganization one benefit of the target merging into an LLC is avoiding

Answer 13

a premerger vote by buyer shareholders

Question 14

In a Type A reorganization one benefit of the target merging into an LLC is avoiding

Answer 14

it can separate out the target liabilities into limited liability entity with no tax impact

Question 15

In Type A reorganizations, the target shareholders receive

Answer 15

the buyer stock

Question 16

In Type A reorganizations, the target shareholders may also receive

Answer 16

cash or other consideration

Question 17

In Type A reorganizations, any cash or other consideration received by target shareholders is

Answer 17

taxable under the boot rules

Question 18

A type B reorganization under IRC Section 368(a)(1)(B) involves the buyer’s acquisition of control of the target solely in exchange for

Answer 18

voting stock of the buyer or its parent corporation

Question 19

In a type B reorganization under IRC Section 368(a)(1)(B) Control means

Answer 19

80% of total combined voting power

Question 20

In a type B reorganization under IRC Section 368(a)(1)(B) the ONLY acceptable form of consideration is

Answer 20

voting stock of the buyer or its parent

Question 21

An Internal Revenue Code 338(h)(10) election is set up for purchasers of

Answer 21

S corporations or subsidiaries who make a qualified stock purchase

Question 22

An Internal Revenue Code 338(h)(10) election allows the purchaser and seller to

Answer 22

treat a stock sale like an asset sale for tax purposes

Question 23

In an Internal Revenue Code 338(h)(10) election severance payments to terminated employees are generally

Answer 23

tax deductible if covered under the acquisition

Question 24

In an Internal Revenue Code 338(h)(10) election severance payments to terminated employees are generally not tax deductible if

Answer 24

the payments are made after the purchase

Question 25

Under IRS Rule 338(h)(10), both acquisition costs and liabilities transferred to the buyer are added to

Answer 25

the basis of assets acquired in the merger

Question 26

Under IRS Rule 338(h)(10), The elections are filed on

Answer 26

IRS form 8023

Question 27

Under the IRC, corporations merging are allowed a

Answer 27

qualified stock purchase

Question 28

Under the IRC, when a buyer purchases at least 80% of the total voting power and value of the stock of the seller it is a

Answer 28

qualified stock purchase

Question 29

A qualified stock purchase must take place during

Answer 29

a 12-month period

Question 30

In a qualified stock purchase what cannot be used to compute voting power?

Answer 30

preferred stock

Question 31

IRS Rule 280G covers

Answer 31

Golden Parachute Payments.

Question 32

an agreement between a corporation and an employee (usually an executive) that the employee will receive certain benefits if he is terminated.

Answer 32

golden parachute

Question 33

typically severance packages paid to a company’s top executives in the event of a merger or acquisition of that company.

Answer 33

golden parachute

Question 34

Under Rule 280G the corporation may not deduct the excess if a payment is

Answer 34

more than three times the base pay of a highly compensated employee

Question 35

Under Rule 280G if a payment is more than three times the base pay of a highly compensated employee the employee must

Answer 35

pay a 20% excise tax on the excess payment

Question 36

Under Rule 280G when calculating the excess payment, these things must be added to the payout:

Answer 36

any life, health and disability insurance premiums paid by the corporation for the employee

Question 37

Sell side steps of setting up the process:

Answer 37

1. Prepare and finalize the engagement letter
2. Meet with seller to determine the goals and structure of sale
3. Due diligence on target
4. Preliminary valuation analysis
5. Choose type of sale process
6. Identify and analyze buyers

Question 38

states the legal relationship between an investment bank and its client

Answer 38

engagement letter

Question 39

An engagement letter should be as

Answer 39

specific as possible

Question 40

An engagement letter should list, in great detail, the

Answer 40

services which are to be provided

Question 41

Sale structuring options include

Answer 41

stock vs. asset sale

merger vs. tender offer

Question 42

Sale side due diligence includes

Answer 42

meeting with management
research into business
research into financial model

Question 43

Preliminary valuation analysis may include

Answer 43

DCF analysis
LBO analysis
precedent transaction analysis
comparable companies analysis
SOTP analysis