Abaco is planning to acquire Cozumel Airlines, a freestanding C corporation, in the expectation that new management can be brought in to achieve substantial operating ef$$ciencies$.$ Two graduate school friends, Monique and Denise, own Cozumel Airlines. Together, they have a $$1$ million basis in their Cozumel Airlines stock. Both Monique and Denise have held their Cozumel Airlines stock for several years but must sell their stock for nontax reasons. Cozumel Airlines$$ tax$-$basis balance sheet contains $$14$ million of assets, no liabilities, and no net operating loss carry$-$overs. All parties agree that Cozumel Airlines would be worth $$20$ million to Abaco with no step$-$up in Cozumel$$s inside $($asset$)$ basis, but $$21\mathrm{.}25$ million if its inside $($asset$)$ basis was stepped up to fair market value. Monique and Denise each face a $40\%$ tax rate on ordinary income and a $20\%$ tax rate on capital gains.

The corporate tax rate is $35\%.$

Option $1$: Abaco buys outright all Cozumel Airlines$$ assets for $$18$ million$$a taxable asset acquisition. Cozumel Airlines pays resulting taxes on the sale, if any, and distributes the proceeds to Monique and Denise in a complete liquidation.

Option $2$: Abaco pays Monique and Denise $ $\_\_\_\_\_$ million in cash for their stock in Cozumel and does not make a Section $338$ election.

a$.$ How much after$-$tax cash will Monique and Denise get in aggregate if Option $1$ is chosen?

b$.$ In Option $2,$ how much cash would Abaco have to pay to make Monique and Denise indifferent between Option $1$ and Option $2?$

c$.$ What is Abaco$$s net present value if Option $1$ is chosen? d$.$ What is Abaco$$s net present value if Option $2$ is chosen$$based on your answer to part $($b$)?$