Shepherd Corporation is considering acquiring RentCo byexchanging its stock (value of $10 per share) for RentCo's onlyasset, a tract of land (adjusted basis of $150,000 and noliability). The yearly net rent that RentCo receives on the land is$50,000. Shepherd anticipates that it will receive the same netrent for the land over the next 20 years. At the end of that time,it would sell the land for $400,000. Assume that Shepard uses a 10%discount rate and is in the 25% state and Federal income taxbracket for all years. Determine what type of reorganization isbeing contemplated by this transaction by answering the questionsbelow.
Round dollar amounts to the nearest dollar and round the numberof shares to the nearest whole number.
a. Compute the net (after taxes) yearly cashflow. $_________
b. Compute the NPV of yearly cash flow.$_______
c. Compute the net cash flow from sale of land.$______
d. Compute the NPV of cash flow from sale ofland. $_______
e. Compute the NPV of the Rentco stock.$______
f. What is the maximum number of shares thatRentCo shareholders can expect Shepherd to offer for 100% of theirRentCo stock?
________ shares
g. What type of reorganization is thiscontemplated transaction?
Either "Type A" or "Type C"
