Question

Assume that Western Exploration Corp. is considering the acquisition of Ogden Drilling Company. The latter has a $600,000 tax loss carryforward. Projected earnings for the Western Exploration Corp. are as follows:

		2011			2012			2013			Total Values
	Before-tax income	$	260,000		$	290,000		$	410,000		$	960,000
	Taxes (40%)		104,000			116,000			164,000			384,000
	Income available to stockholders	$	156,000		$	174,000		$	246,000		$	576,000

a. How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax loss carryforward? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

b. How much will the total income available to stockholders be for the three years if the acquisition occurs? (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

Answer 1

	2011	2012	2013	Total Value
Before-tax income	260,000.00	290,000.00	410,000.00	960,000.00
Tax loss carry-forward	260,000.00	290,000.00	50,000.00	600,000.00
Net taxable income	-	-	360,000.00	360,000.00
Taxes (40%)	-	-	144,000.00	144,000.00
Income available tostockholders (beforetax income—taxes)			266,000.00	816,000.00