After operating a successful US hotel corporation (H Corp) for
several years, Donald decides to set up a wholly owned subsidiary
in the export business (X Corp). His initial investment in this
corporation is $1,000. Through a stroke of luck, the US tax laws
change and X Corp becomes worth $100,000 overnight, even though its
balance still only reflects $1,000 cash and $1,000
equity.
Donald is considering selling the
operation but is concerned about the tax ramifications.
a. What would...