Walkers is planning to acquire Cayman Bank, a freestanding C corporation, in expectation that new management can be brought in to achieve substantial operating efficiencies. You have been retained to advise Walkers on how to structure the acquisition. Two grad school friends, Joe and Jim, own Cayman Bank. Together, Joe and Jim have a $6 million basis in their Cayman Bank stock. Both Joe and Jim have held their Cayman Bank stock long enough to get long-term capital gain treatment but must sell their stock for nontax reasons. Cayman Bank's tax-basis balance sheet contains $3.5 million of assets, no liabilities, and $2.5 million of net operating loss carryovers. All parties agree that Cayman Bank would be worth $8 million to Walkers with no step-up in Cayman's inside (asset) basis, but would be worth $8.75 million if its inside (asset) basis was stepped up to fair market value. Joe and Jim each face a 40% tax rate on ordinary income and a 20% tax rate on capital gains. The corporate tax rate is 21 %. Option 1: Walkers buys outright all of Cayman Bank's assets for $7 million in a taxable asset acquisition. Cayman Bank pays resulting taxes on the sale, if any, and distributes the proceeds to Joe and Jim in a complete liquidation. Option 2: Walkers pays Joe and Jim $ __ million in cash for their stock in Cayman and does not make a Section 338 election.