Question

+ Question Help Tax effects of acquisition Trapani Tool Company is evaluating the acquisition of Sussman Casting, Sussman has a tax loss carryforward of $2,100,000 Trapani can purchase Sussman for $3,000,000 it can sell the assets for $2,400,000, their book value. Trapani expects earnings before taxes in the 5 years after the merger to be as shown in the following table ! The expected earrings given are assumed to fall within the annual limit that is legally allowed for application of the tax loss carryforward resulting from the proposed merger Trapani is in the 40% tax bracket a. Calculate the firm's tax payments and earnings after taxes for each of the next 5 years without the merger b. Calculate the firm's tax payments and earnings after taxes for each of the next 5 years with the merger c. What are the total benefits associated with the tax losses from the merger? (ignore the time value of money.) d. Discuss whether you would recommend the proposed merger Support your decision with figures a. Without the merger, the firm's tax payment in year 1 is $ (Round to the nearest dollar) 0 Data Table (Click on the icon located on the top right corner of the data table below in order to copy its contents into a spreadsheet) 0 Earnings before taxes $150,000 $300,000 $400,000 $900,000 $900 000 Enter your answer in the an Print Done 21 parts Clear A Check Answer - remaining

Answer 1

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