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 $79 billion in tax loss carryforwards. If Fargo Bank was expected to generate taxable income of $15 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%?
Analyzing the Project.AppendixLO1