Given:

	Basis to Transferor			Fair Market Value			Number of Shares Issued
From Tom
?Cash		$ 50,000			$ 50,000
?Installment note		240,000			350,000		40
From Gail
?Inventory		60,000			50,000
?Equipment		125,000			250,000
?Patentable invention		15,000			300,000		60

Gail is considering an alternative to the plan as presented above. She is considering selling the inventory to an unrelated third party for $50,000 in the current year instead of contributing it to Owl. After the sale, she will transfer the $50,000 sales proceeds along with the equipment and patentable invention to Owl for 60 shares of Owl stock. Whether or not she pursues the alternative, she plans to sell her Owl stock in six years for an anticipated sales price of $700,000. In present value terms and assuming she later sells her Owl stock, determine the tax cost of (1) contributing the property as originally planned or (2) pursuing the alternative she has identified. Referring to Appendix G, assume a discount rate of 6%. Further, assume Gail's marginal income tax rate is 28% and her capital gains rate is 15%.