You have built an auto parts company from the ground up. Starting with selling dipsticks to GM 40 years ago, and finally graduating to higher-end door lock mechanism subassemblies, you have succeeded in building a business valued at $100 million by some estimates. As you have started to think about retirement, an offer for your C Corp magically appearsfor $100 million, no less! On closer inspection, the offer requires the sale be structured as an asset transaction for US tax purposes.

Assumptions:

Basis in C Corp stock: $0

Net book value (which equals inside tax basis) of C Corp per latest balance sheet: $50 million

Fair market value in excess of book value (tax basis) of specific assets:

Machinery & equipment with tax lives ranging from 5 7 years (no current book basis): $35 million

Goodwill, amortizable over 15 years: $40 million

Q: What will an asset vs a stock sale cost you in additional tax?

Q: How much tax savings is involved for the buyer in future corporate tax deductions?

Q: Can you present value the buyers tax savings?

Q: What impact would there be if your C Corp had a tax NOL resulting from the GM strike of $10 million to offset against any asset sale gain?

Q: The buyer has indicated a willingness to structure as much as $5 million of the purchase price as a consulting agreement over the next 5 years. How might that affect your net cash flow from the deal? Assume you have no other taxable income for those years.