Purchase Solution

Redeeming stock shares upon retirement

Not what you're looking for?

Ask Custom Question

Need help

Mr. Burton owns 58,000 of the 100,000 outstanding shares of Mirkwood stock with a $50 basis per share. He wants to retire from business, and Mirkwood?s board of directors has offered to redeem any number of his shares for FMV ($120 per share). Mr. Burton wants to surrender enough shares so that the redemption will be treated as a sale instead of a dividend distribution.
(a) Determine the minimum number of whole shares that Mirkwood can redeem from Mr. Burton.
(b) Compute Mr. Burton?s after-tax cash flow from the redemption and compare it to his after-tax cash flow if Mirkwood redeemed one share less than the minimum number. Assume that his marginal tax rate on ordinary income is 35 percent.

Purchase this Solution
Solution Preview

(a) Determine the minimum number of whole shares that Mirkwood can redeem from Mr. Burton.
<br>Substantially disproportionate redemption of stock: A redemption will be treated as a sale of stock by the redeemed shareholder if immediately after the redemption the shareholder (a) holds less than 50% of the voting power of the stock; (b) holds less than 80% of the voting stock the shareholder held before the redemption; and (c) holds less than 80% of the ...

Purchase this Solution
Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Basics of corporate finance

These questions will test you on your knowledge of finance.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

View More Free Quizzes
Related BrainMass Solutions

  • Defined benefit vs defined contribution: who bears risk

    In this case, many employees will try and take advantage into owning as much of the firm's shares with the hope that the firm's shares will improve and they will in turn acquire a capital gain from the same.

  • Computing Equity

    During 2011, TNL Systems reacquired shares of its common stock and later sold shares in two separate transactions.

  • Annuity versus revenue stream

    Stated another way, if I am an investor in any firm, and I own shares of stock in that firm, essentially I am guaranteed NOTHING.

  • What are the advantages and disadvantages to a company receiving a bailout?

    Issuing preferred shares to the government permitting raising of funds without disturbing the common stockholder rights and permitting the "wind down" after the storm by just redeeming the special class of stock.

  • Retirement of Shares

    84080 Retirement of Shares The stockholder's equity section of Peter Corporation's balance sheet at December 31, 2005 was as follows: Common stock ($10 par value); authorized 1,000,000 Shares, issued and outstanding 900,000 shares $9,000,000

  • Business Taxation (USA Only)

    Assume that the current value of the stock is $43 per share Question: Please explain to the Board the federal income tax effects upon both the employer and the employee from the adoption of the plan to the possible sale of the shares by the employee

  • Weighted average cost of capital

    To fill cell E33 the cost of common stock at par, you need to divide D33 by 18.4, which is the paid up value of the common stock.
    9. For cell E34 retained earnings are divided by the value of the common stock.
    10.

  • Net Present Value, Stock Dividend, and Accumulated Value

    After the payment of a 25% stock dividend, and investor has 500 shares of stock and $400 total value. What did the investor have prior to the stock dividend? In stock dividend you get the additional shares in proportion to the share you own.

  • operating expenses of types of mutual funds

    In other words, the managers of open-end fixed income mutual fund are continuously providing the services of issuing new shares and redeeming the shares (a).

View More Related Solutions