Ten years ago, Valeria and Issac each invested $$300,000$ to create Xava Corporation. Xava develops and manufactures climbing and bungee jumping equipment. The business has become very profitable $($it now is valued at $$3,000,000),$ al Issac would like to cash out the profits and sell the business. Valeria, however, wants to reinvest the profits and expand business into ice diving.

Because they have different expectations, Valeria and Issac agree that the best solution is to divide up the company. Is will receive the bungee division; Valeria, the rock climbing. After the reorganization, Issac sells his stock in the bungee division for $$1,500,000$ at the beginning of the current year. Valeria retains her ownership of the rock climbing division.

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a$.$ What type of reorganization would be used to divide Xava Corporation between Valeria and Issac?

The reorganization that could be used to divide Xava Corporation between Valeria and Issac would be would be appropriate if Valeria wanted to continue the business under $t$ Xava name. If Issac preferred that Xava cease to exist, : would be more appropriate.

b$.$ Valeria sells the rock climbing stock for $$2,000,000$ at the end of six years. Using a $7\%$ discount factor, determine whether Issac or Valeria made a better decision. Assume a $20\%$ tax rate on long$-$term capital gains.

Determine the present value of the after$-$tax cash flow for Valeria and Issac on the sale of the stock. Then indicate who, either Valeria or Issac, made the better choice.

Round answers to the nearest dollar.

Present value for Issac $

Present value for Valeria $

made the better choice as the present value of their after$-$tax cash flow is higher.