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 $88billion in tax loss carryforwards. If Fargo Bank was expected to generate taxable income of $12billion 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 of8%? How would the present value change under current law which restricts the amount of the deduction to 80%of pre-tax income?

If Fargo Bank was expected to generate taxable income of $12 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 carryforwards is $enter your response here

billion. (Round to two decimal places.)

Answer rating: 100% (QA)

To calculate the present value of the acquired tax loss carryforwards we need to discount the future ... View the full answer