It was announced today that Matric Inc. will acquire Cajun Systems. Cajun Systems has assets with a tax basis of $5 billion and has $1 billion of liabilities. Prior to being acquired, Cajun System has no goodwill on its tax books, although it had approximately $2 billion of goodwill on its financial statements. Cajuns identifiable assets, which include intangible assets other than goodwill, are estimated by Matrix to have a fair market value of $9 billion and its liabilities have a fair market value of $1 billion. Cajun has two primary classes of shareholders. The first consists of taxable investors, who own 15 million of Cajun Systems outstanding shares with an aggregate basis of $2 billion. For simplicity, assume these stockholders have all held Cajun stock more than 18 months and all purchase the stock at the same price. The second consists of carious nontaxable entities, including pensions funds and certain foreign investors, who own the remaining 5 million of Cajuns outstanding shares and have an aggregate basis of $1 billion. Neither Matrix nor Cajun System has any net operating loss carryovers, and both face a 35% tax rate. Assume any boot is taxable at capital gains rates of 20%. Matrix gives voting stock in exchange for all the outstanding stock of Cajun Systems (a Section 268 B Structure). Cajun becomes a wholly owned subsidiary of Matric. At the time of the exchange, the Matric stock given has a market value of $10 billion.

1. What tax basis will Matrix take in the stock of Cajun System acquired?
2. What tax basis will Cajun (and Matrix through its ownership of Cajun) have in its net assets, or assets les liabilities, following the acquisition? Instead, assume Matrix gives voting stock of $7.5 billion and cash of $2.5 billion, and Cajun is merged under state law into a newly created, wholly owned acquisition subsidiary of Matrix called Newco, a Section 368 A structure.
3. Assuming the cash portion of the purchase price all goes to the nontaxable investors, and the entire stock portion of the purchase price goes to the taxable investors. How much tax will the Cajun shareholders pay in aggregate at the time of the sale?
4. Now, assume instead that the cash and stock portions of the purchase price are prorated, so each Cajun shareholder gets s package of cash and Matrix stock. That is, ever share of Cajun stock is exchanged for $125 cash and $375 of Matric stock. How much tax will Cajun shareholders pay in aggregate at the time of the sale?
5. Assuming the structure outlined in part b, what tax basis will Newco have in the net assets of Cajun?
6. Assuming the structure outlines in part b, how much tax-deductible goodwill will Matrix/Cajun have post-acquisition