Question:

1.) AF Corp. has 100 shares of authorized stock, all of which is issued and outstanding. Ann owns 55 of the shares of AF Corp., and Fay owns the other 45 shares. What is the minimum number of Ann's shares that must be redeemed by AF Corp. for the redemption to qualify as substantially disproportionate under Code Section 302(b)(2)?

a. 28

b. 27

c. 25

d. 20

e. 19

2.) All of the stock of Goget Corporation, a C Corporation, is owned by X Corp., a C Corporation that wishes to dispose of its interest in Goget Corporation. What is the principal tax reason that X Corp. would prefer that Goget Corporation pay a dividend to X Corp. thereby reducing the sales price to be paid to X Corp. by the purchaser?

a. Because a dividend is reported on X Corporation's financial statements as income.

b. Because the stock could be sold in a public offering at a price which, coupled with the dividend, is greater than a sale of the stock without the dividend.

c. Because the price to earnings ratio is not affected by the dividend.

d. Because a dividend is taxed at a lower effective income tax rate to a C corporation shareholder than is a capital gain.

e. X Corporation does not have such a preference.