In September 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield their future income from taxes (prior law restricted the ability of acquirers to use these credits). Suppose Fargo Bank acquires Covia Bank and with it acquires $74 billion in tax loss carryforwards. If Fargo Bank is expected to generate taxable income of 10 billion per year in the future, and its tax rate is 30%, what is the present value of these acquired tax loss carryforwards given a cost of capital of 8%? NOTE: Assume that the firm can use tax loss carryforwards to write-off 100% of its earnings

In September 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield their future income from taxes (prior law restricted the ability of acquirers to use these credits). Suppose Fargo Bank acquires Covia Bank and with it acquires $74 billion in tax loss carryforwards. If Fargo Bank is expected to generate taxable income of 10 billion per year in the future, and its tax rate is 30%, what is the present value of these acquired tax loss carryforwards given a cost of capital of 8%? NOTE: Assume that the firm can use tax loss carryforwards to write-off 100% of its earnings

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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