Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carryforward...
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Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carryforward of $2,300,000. Trapani can purchase Sussman for $3,300,000. It can sell the assets for $2,600,000, 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 earnings 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. Year 1 2 4 5 Earnings before taxes $300,000 $450,000 $550,000 $700,000 $700,000 Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carryforward of $2,300,000. Trapani can purchase Sussman for $3,300,000. It can sell the assets for $2,600,000, 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 earnings 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. Year 1 2 4 5 Earnings before taxes $300,000 $450,000 $550,000 $700,000 $700,000
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Trapani Tool Sussman Merger Analysis a Without the Merger Tax Payments and Earnings After Taxes Year ... View the full answer
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
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