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Business, 22.03.2021 17:00 maxi12312345

In September​ 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield up to​ 100% of their future income from taxes​ (prior law restricted the ability of acquirers to use these​ credits). Suppose Fargo Bank acquired Covia Bank and with it acquired $ 60 billion in tax loss carryforwards. If Fargo Bank was expected to generate taxable income of $ 8 billion per year in the​ future, and its tax rate was 30 %​, what was the present value of these acquired tax loss carryforwards given a cost of capital of 8 %​? How would the present value change under current law which restricts the amount of the deduction to 80 % of​ pre-tax income?

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