Corporate Finance, Student Value Edition (4th Edition)
Corporate Finance, Student Value Edition (4th Edition)
4th Edition
ISBN: 9780134101446
Author: Berk, Jonathan; DeMarzo, Peter
Publisher: PEARSON
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Chapter 8, Problem 21P
Summary Introduction

To determine: The present value of acquired tax loss carried forward.

Introduction:

The present value is an amount that an individual has to make in an investment at present, in order to generate cash flow in future. The present value of the cash flows can be computed by adding the cash flow of every stream.

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In September​ 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield up to​ 100% of their future income from taxes​ (prior law restricted the ability of acquirers to use these​ credits). Suppose Fargo Bank acquired Covia Bank and with it acquired $58 billion in tax loss carryforwards. If Fargo Bank was expected to generate taxable income of $8 billion per year in the​ future, and its tax rate was 30%​, what was the present value of these acquired tax loss carryforwards given a cost of capital of ​8%? How would the present value change under current law which restricts the amount of the deduction to 80% of​ pre-tax income? Question content area bottom Part 1 If Fargo Bank was expected to generate taxable income of $8 billion per year in the​ future, and its tax rate was 30%​, what was the present value of these acquired tax loss carryforwards given a cost of capital of ​8%? The present value of these acquired tax loss…
For many years preceding 2018, Minimis Corporation, a calendar year corporation, had incurred the alternative minimum tax (AMT) and as a result had a $2 million minimum tax carryover into 2018.  However, the Tax Cuts and Jobs Act of 2017 repealed the corporate AMT for tax years beginning after 2017.  Minimis expects its regular tax liability to be $100,000 per year for 2018, 2019, 2020, and 2021.  Your supervisor has asked you to determine how Minimis treats the minimum tax credit carryover in these four years now that the corporate AMT has been repealed.  Your supervisor has suggested that you start by looking at IRC Sec. 53.
The Angell Company has earned $150,000 before taxes during each of the last 15 years, and it expects to earn $150,000 per year before taxes in the future. This year, however, the firm incurred a loss of $650,000. It will claim a tax credit at the time it files this year’s income tax return, and it will receive a check from the U.S. Treasury. Show how Angell calculates this credit, and then indicate the firm’s tax liability for each of the next five years. Assume a 30 percent tax rate on all income to simplify the calculations
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