11. Your client, X Co., owns and is ready to sell a subsidiary, Z Co. The following information may be relevant to negotiations with prospective buyers Inside basis $710 Outside basis $815 Ordinary tax rate 21% Capital gains tax rate 21%

a. If X Co. sells Z Co. stock for $2,000 and does not agree to a 338(h) (10) election, how much cash will X Co. have after paying tax on the sale?

b. How much will X Co. have to be paid to agree to a 338(h) (10) election?

c. Whats the most an acquirer would pay X Co. to agree to a 338(h) (10) election? Assume any step-up in basis of acquired X Co. net assets would reduce the taxable income of the acquirer in equal increments over 4 years, that the acquirer had a tax rate of 21% and discounted all future cash flows using a 12.5% rate.

d. Whats the most an acquirer would pay X Co. to agree to a 338(h) (10) election? Assume any step-up in basis of acquired X Co. net assets would reduce the taxable income of the acquirer in equal increments over 10 years, that the acquirer had a tax rate of 21% and discounted all future cash flows using a 12.5% rate.

e. Whats the most an acquirer would pay X Co. to agree to a 338(h) (10) election? Assume any step-up in basis of acquired X Co. net assets would reduce the taxable income of the acquirer in equal increments over 10 years, that the acquirer had a tax rate of 21% and discounted all future cash flows using a 9.5% rate.