Pizza Hut will acquire Dominos Pizza which has a loss carry forward loss of $1.5 million which
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Question:
Pizza Hut will acquire Dominos Pizza which has a loss carry forward loss of $1.5 million which resulted from earlier operations. Pizza Hut can purchase Domino’s Pizza for $1.8 million and liquidate the assets for $1.3 million. Pizza Hut expects post-merger earnings as follows:
Years | Earnings Before Taxes ($) |
1 | 108,000 |
2 | 288,000 |
3 | 324,000 |
4 | 425,000 |
5 | 425,000 |
Pizza Hut is in 40% Tax Bracket. Cost of Capital is 17%.
Requirement:
a) What is the Tax Advantage of the acquisition each year for pizza Hut?
b) What is the maximum amount pizza Hut will be willing to pay for Domino’s Pizza?
c) Do you Recommend the Acquisition? Explain.
Related Book For
Financial and Managerial Accounting
ISBN: 978-0538480895
11th Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren
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