Use the following information to answer the question(s)below.
Really Big Conglomerate (RBC)is considering acquiring POP,Inc.a smaller unsuccessful Internet firm.POP has outstanding tax loss carry forwards of $320 million from losses over the past six years.RBC has pre-tax income of $100 million per year,a cost of capital of 10%,and pays 35% in taxes.
-If RBC acquires POP,in what year will RBC be required to pay corporate taxes again?
A)2 years
B)3 years
C)4 years
D)5 years

Question

Quizplus · Accepted Answer

C)The tax shield will last for 320/100 = 3.2 years,so in the fourth year RBC will have
(100 - 20)= 80 million in taxable income.

Use the Following Information to Answer the Question(s)below