. Gail is considering an alternative to the plan as presented above. She is cons

Question

. Gail is considering an alternative to the plan as presented above. She is considering selling the inventory to an $50,000 in the current year instead of contributing it to owl. After the sale, she will transfer the $50,000 sales proceeds along with the equipment and patentable invention to Owl for 60 sh Owl stock in six years for an anticipated sales price of $700,000. In present value terms and assuming determine the tax cost of (1) contributing the property as originally planned, or (2) pursuing the alternative she has identified. ares of Owl stock. Whether or not she pursues the alternative, she plans to sell her she later sells her Owl stock, Assume a discount rate of 6%. The present value factors at 6% are 1.000 for year 1 and 0.7050 for year 5. Further, assume Gail's marginal income tax rate is 28% and her capital gains rate is 15%. If required, round your answers to the nearest dollar. Tax cost associated with sale of Owl stock for $700,000 is . Tax cost associated with the current sale of inventory for $50,000 and subsequent sale of Owl stock for $700,000 is . The present value of the tax cost of the alternative is

Explanation / Answer

The Property as originall Purchased Book Value of Asset Contributed (60+240+60+125+15) 500 Total No. of Share 100 Cost of Share Acquired by Gail (60X500)/100 300 Sale Consideration 700 Capital Gain (700-300) 400 Tax @ 15 % 60 Present Value (60*0.7094) 42.564 The Alternative of The plan Capital Loss on Sale (60-50) 10 Book Value of Asset Contributed (50+240+60+125+15) 490 Total No. of Share 100 Cost of Share Acquired by Gail (60X490)/100 294 Sale Consideration 700 Capital Gain (700-294) 406 Net Gain(406-10) 396 Tax @ 15 % 59.4

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