Chapter 7, Problem 44 – LO.

3,5 Through a “Type A” reorganization, VizslaCo acquires 100% of Puli

Corporation by exchanging 30% of its stock for all of Puli’s assets and liabilities. The VizslaCo stock was
exchanged for all of the stock of the Puli shareholders. Then Puli liquidated. The net value of Puli’s
assets at the time of the restructuring was $500,000, and the Federal long-term tax-exempt rate was
3%. Puli held NOL carryovers of $37,500. If VizslaCo is always in the 25% state and Federal income tax
bracket, what is the value of these credits to VizslaCo assuming that it uses a discount rate of 8%?
Prepare your solution using spreadsheet software such as Microsoft Excel. Hint: Use text Appendix F in
your analysis.

Through a “Type A” reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its
stock for all of Puli’s assets and liabilities. The VizslaCo stock was exchanged for all of the stock of the
Puli shareholders. Then Puli liquidated.

- VizslaCo acquires 100% of Puli by exchanging 30% of its own stock  Puli terminates 
Ownership change (70% point change)

The net value of Puli’s assets at the time of the restructuring was $500,000, and the Federal long-term
tax-exempt rate was 3%.

- Loss Corporation’s FMV on change date x Federal Long-Term Tax-Exempt Rate = Section 382
Yearly Limit
 $500000 x 3% = $15000

Puli held NOL carryovers of $37,500.

If VizslaCo is always in the 25% state and Federal income tax bracket, what is the value of these credits
to VizslaCo assuming that it uses a discount rate of 8%?

NV of Puli at the time of restructuring $500,000

Federal long-term tax-exempt rate 3%
Puli NOL Carryover $37,500
VizslaCo State and Federal Income Tax Bracket 25%
VizslaCo Discount Rate 8%
PV of Ordinary Annuity at $1 8% for 10 years 6.7101

Section 382 Limitation $15,000

Section 382 Credit $3,750
Section 382 Number of Years 10
NPV at 8% for 10 years $25,162.81