Kaitlyn owns all the shares of Hackett Inc., a CCPC that owns and operates a summer camp.

She invested $250,000 into the company in exchnage for her 1,000 common shares back in 2017, and has held her shares since then.

At the time of her investment,, her aunt Laura (the original owner of the business) had already invested $650,000 into the company for her 2,00 common shares.

After Laura retired in 2018, Kaitlyn had been the sole owner-manager of the corporation.

On Jan. 1 2022, Kaitlyn herself decided to retire from the business. She has received two offers from competing buyers:

1) Buyer #1 would like to purchase all of Kaitlyn's shares for $700,000 cash.

2) Buyer #2 would like to purchase all of Hackett Inc's assets for their FMV.

Hackett Inc's assets as of Jan. 1 2022 are as follows:

Asset

Tax Value

FMV

Inventory

$ 15,000.00

$ 20,000.00

Marketable Securities

$ 300,000.00

$ 230,000.00

Land

$ 150,000.00

$ 250,000.00

Building (Cost: $260,000)

$ 150,000.00

UCC

$ 288,000.00

Vehicle (Cost: $30,000)

$ 11,000.00

UCC

$ 12,000.00

Goodwill

$ -

$ 200,000.00

Total

$ 1,000,000.00

The FMV of Hackett Inc's assets have been relatively stable over the prior two years.

The company has the following account balances as of Jan. 1 2022 (prior to any proposed sales):

Account

Balance

Capital Dividend Account

$ 40,000.00

Non-eligible RDTOH

$ 20,000.00

GRIP Balance

$ 100,000.00

Assume that Hackett Inc's corporate tax rates are: 13% on active business income below $500,000; 26% on active business income above $500,000; and 48.67% on aggregate investment income.

Assume Kaitlyn's marginal tax rate is 45%.

If Kaitlyn takes offer #2, she will use the funds to pay off the corporation's remaining liabilities of $230,000, and then redeem her shares for the remaining cash in the business.

Required:

a) Assume that Kaitlyn's sole objective is to maximize her after-tax funds received from selling her business, which offer should she accept given the information above?

b) Suppose that, prior to accepting one of the two offers on Jan. 1, Kaitlyn sold the marketable securities of Hackett Inc. and used it to pay off the company's liabilities. Do you think that this might affect your answer in part a)? Do not perform any detailed calculations here, just explain qualitatively and state any assumptions made.