In$-$class case: Acquisition of freestanding corpAcquisition of a freestanding corp $-$ FactsConsider the following facts to quantify the tax costs of various taxable acquisition structures when the target is a freestanding C corporation. Wolverine, Inc. $($a C corporation$)$ wants to purchase Reel Deal, Inc., which is a freestanding C corporation. Reel Deal has a net asset tax basis of $$500,000.$ Reel Deal has no NOLs and is currently owned by a small block of shareholders that have a total basis in their Reel Deal stock of $$2,000,000.$ Wolverine wants to offer $$10$ million for all of the assets of Reel Deal. The company has no liabilities and Wolverine will liquidate the target after the acquisition.Assumptions:The corporate tax rate is $21\%$The discount rate is $15\%$Shareholder$-$level capital gains tax rate is $20\%\mathrm{.}1.$ Assume that Wolverine purchases Reel Deal in a taxable asset sale at a price of $$10$ million and the target will be liquidated.a$.$ How much cash will the shareholders of Reel Deal come out with after tax?b$.$ Recall that with a taxable asset sale, the basis of the assets are stepped up to FMV and are depreciable$/$amortizable based on the type of asset. Goodwill is amortized over $15$ years and tangible assets are amortized based on MACRS depreciation rules, including bonus depreciation.i$.$ First assume that the FMV of the tangible assets is the same as the basis to Reel Deel of $$500,000,$ which means that the step up is allocated completely to goodwill. What is Wolverines net after$-$tax cost of this transaction? Hint: the annual tax savings from amortization can be treated as an annuity payment. Begin with the pretax cost of the sale and add back the present value of the tax savings.$$You can ignore the tax savings from the tangible assets for simplicity.ii$.$ Instead, now assume that the FMV of the tangible assets is the same as the total purchase price. Assume that Wolverine can depreciate substantially all of the step up in the year or purchase. For simplicity, you can assume $100\%$ bonus depreciation in the year of purchase. What is Wolverines net after$-$tax cost of this transaction? For comparability to part ii above, ignore the tax from the $$500$k of assets $($only figure the tax savings on the step up$)\mathrm{.}2.$ Now instead consider a taxable stock acquisition. Recall that in a taxable stock sale, there is only one level of tax $($at the shareholder level$).$a$.$ What price would Reel Deal be willing to accept in a taxable stock acquisition? Hint: look at the after$-$tax cash flow to shareholders from the asset sale. What sales price in a stock sale would get them the same amount of ATCF?b$.$ What would Wolverines net after$-$tax cost of the stock acquisition be$?3.$ Which structure makes the most sense for tax purposes? Why?$4.$Assuming instead that Wolverine and Reel Deal have negotiated a price for a stock purchase. Theoretically, how would Wolverine go about deciding how much extra they are willing to pay to structure the deal as an asset purchase? What other non$-$tax factors would also affect that decision?$5.$ What are tax free acquisition options and are these viable to consider?