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Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carry forward of $1.8 million. Trapani can purchase...
Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carry forward of $1.8 million. Trapani can purchase Sussman for $2.1 million. It can sell the assets for $1.6 million—their book value. Trapani expects its earnings before taxes in the 5 years after the merger to be as shown in the following table.Year--> Earnings before taxes1--> $150,0002--> 400,0003--> 450,0004--> 600,0005--> 600,000The expected earnings given are assumed to fall within the annual limit that is legally allowed for application of the tax loss carry forward resulting from the proposed merger. Trapani is in the 40% tax bracket.b. Calculate the firm’s tax payments and earnings after taxes for each of the next 5 years with the merger.
Computation of Firm’s tax payments and earnings after taxes (without merger.)ParticularsAmountAmountAmountAmountEarnings before taxes150,000.00 400,000.00 450,000.00 600,000.00Set off...