9.1 Assume the buyer acquires a debt-free target for $70 cash, the target’s tax basis in the assets is $20, the target shareholders’ basis in the stock is $35, and the fair market value of the stock was $55 prior to the acquisition. Let the corporate tax rate be 40%, the personal tax rate on capital gains be 20%, and assume that all the gain to the seller is classified as capital gain and the buyer’s price in excess to the target’s basis is allocated to goodwill. The cost of debt to the buyer is 9%.

Calculate the net proceeds to the seller shareholders and the tax consequences to the buyer in a stock purchase and an asset purchase.