ACCA Strategic Professional · Advanced Financial Management · Business re-organisation
Kora plc plans to sell its division Kora Tech to a trade buyer. The division has a book value of $40m and a tax base of $25m. The agreed sale price is $55m and the tax rate on gains is 20%. Kora has 100m shares in issue. Ignoring other costs, what is the increase in net cash per share for Kora's shareholders from the sale, taking the after-tax proceeds?
The gain is measured against the tax base: 55 minus 25 gives $30m, taxed at 20% to $6m. Net proceeds are $49m, which over 100m shares is $0.49 per share. Using book value instead of tax base would wrongly give $0.52.
- A$0.49Correct
- B$0.52
- C$0.55
- D$0.45
Explanation
Taxable gain = 55 - 25 = $30m; tax = 20% x 30 = $6m. After-tax proceeds = 55 - 6 = $49m. Per share = 49/100 = $0.49. Using book value for the gain (55-40=15, tax 3, proceeds 52) gives $0.52, which is wrong as tax is on the tax base.
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