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Toni's Typesetters is analyzing a possible merger with Pete's Print Shop. Toni's has a tax loss...

Toni's Typesetters is analyzing a possible merger with Pete's Print Shop. Toni's has a tax loss carryforward of $ 400,000, which it could apply to Pete's expected earnings before taxes of $200,000 per year for the next 5 years. Using a 38 % tax rate, compare the earnings after taxes for Pete's over the next 5 years both without and with the merger.

Without the merger, Pete's Print Shop's earnings after taxes in years 1 through 5 is $_________ (Round to the nearest dollar.)

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Expert Solution

With Merger
years cash flow tax loss profit before tax tax @38% earning after tax
1 $ 2,00,000.00 $      2,00,000.00 $      2,00,000.00
2 $ 2,00,000.00 $      2,00,000.00 $      2,00,000.00
3 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
4 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
5 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
total $      7,72,000.00
Without Merger
years cash flow tax loss profit before tax tax @38% earning after tax
1 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
2 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
3 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
4 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
5 $ 2,00,000.00 $ 2,00,000.00 $      76,000.00 $      1,24,000.00
total $      6,20,000.00

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