Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Globex Corporation is a high-tech company that owns 100% of the stock of Cyprus Creek, Inc. (CCI). Globex has owned CCI for over 20 years.

Globex Corporation is a high-tech company that owns 100% of the stock of Cyprus Creek, Inc. (CCI). Globex has owned CCI for over 20 years. CCI is in the business of nuclear power generation. CCI has accumulated earnings and profits of $700,000. Globex's basis in its CCI stock is $100,000. Montgomery Burns wishes to acquire the assets of CCI. Unfortunately, an asset purchase would require approval from the Nuclear Regulatory Commission. The Commission does not like Mr. Burns and is unlikely to approve the asset sale. Mr. Burns can, however, legally buy the stock of CCI without getting the Commission's approval. On June 15 of the current year, Mr. Burns offers Globex $800,000 for the stock of CCI (its fair market value). Globex's CEO, Hank Scorpio, (after consulting with his tax advisor) rejects this offer but counteroffers to sell the CCI stock to Burns for $100,000 in cash. Also, Mr. Burns must agree to provide sufficient capital to CCI after his purchase to pay off any debts that CCI owes Globex. Scorpio's plan (which is code-named Project Arcturus) is for CCI to declare and pay a $700,000 dividend to Globex in the form of a note payable—due in 30 days. The Globex board would then approve the sale of CCI stock to Burns. Mr. Burns would then pay Globex $100,000 for the CCI stock and $700,000 to pay off note payable. All of these transactions would take place during a 60 minute period on July 1 of the current year. Mr. Burns agrees to this plan. Answer the following, remembering to explain your answers and cite to the primary authority that supports your answer. 

A. What is Scorpio/Globex attempting to accomplish by Project Arcturus? 

B. Will Project Arcturus work? Why or why not? 

C. Assume instead that in February of the current year, the Globex board started having discussions about selling CCI. In March of the current year, CCI declared and paid a $700,000 dividend to Globex in the form of a note payable. The note payable is due in six months. In April of the current year, Globex publicly announced that it was selling CCI. It entered into talks with several buyers— including Twitter and Meta—but could not reach a deal until Mr. Burns made his June 15 offer. Globex then entered into the deal with Mr. Burns to sell the CCI stock for $100,000 and Mr. Burns's promise to pay off the note payable owned to Globex. How (if at all) would your answer to Part B change in light of these new facts?

Step by Step Solution

3.32 Rating (143 Votes )

There are 3 Steps involved in it

Step: 1

A Project Arcturus Goals ScorpioGlobex aims to distribute the accumulated earnings and profits of CC... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

9th Edition

1337614689, 1337614688, 9781337668262, 978-1337614689

More Books

Students also viewed these Law questions