The Rho Corporation was incorporated eight years ago by Tyee and Danette. Tyee received 2,400 shares of common stock for his $48,000 contribution, and Danette received 4,800 shares of common stock for her $96,000 contribution. Five years ago, both Tyee and Danette acquired $24,000 of Rho bonds paying 3% interest.

In the current year, Rho's common stock is valued at $432,000. SheenCo would like to acquire a 25% interest in Rho by purchasing common stock from Rho. Tyee and Danette see this as a good time to restructure Rho's capital. They would like to own bonds paying 5% interest, instead of 3%, and each would like to receive $300,000 of preferred stock (par of $100 per share) in exchange for some of his or her common stock.

a. Can Rho use a "Type E" reorganization to accomplish its restructuring?

b. Is the exchange of 3% bonds for 5% bonds taxable?

c. If the exchange of common stock for preferred stock occurs before the acquisition by SheenCo, Tyee and Danette each will receive $____ of preferred stock.

d. Is the purchase of common stock by SheenCo a taxable event? How many shares of common stock will SheenCo purchase in order to have a 25% interest in Rho? _____ shares