LOSSMAKER has accumulated tax losses over the last five years amounting to €4.8 million. As the company anticipates profits in the future, it expects to absorb the accumulated losses over the next four years. Taxable profits are given below (in millions of euros):

The CONGLO conglomerate approached LOSSMAKER’s board, proposing a merger.
CONGLO can use the accumulated tax losses immediately to offset its taxable income, thereby reducing its taxes. LOSSMAKER’s operations would remain unchanged. The company uses a discount rate of 10%.

(a) If the only reason for merging is to exploit the tax losses, what is the most that CONGLO could justify paying for LOSSMAKER? (Corporate tax rate is 30%.)

(b) What other ways than merging are there to obtain tax benefits?

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End of year 0 1 2 3 4 Taxable profits 0.86 1.18 1.32 1.44