Discussion
If an acquisition is made using cash payment then the acquisition is:
Answer: A
Correct answer: taxable
Receiving cash is a realisation event: the selling shareholders have disposed of their shares and must recognise the capital gain or loss immediately. Only an exchange of shares can qualify as tax-free, because the seller’s investment continues in another form. This is one of the main reasons a target’s shareholders may prefer paper to cash even at a lower headline price.
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