3) (15 points) NCC's controller believes Portable's model will be obsolete within 5 years due to a myriad of consumer preference, quality control and labor issues. He recommended, unsuccessfully, to Ms. Diaz that they offer Portable to purchase the company at a 40% discount from the value in Question 1a, utilize Portable's current $150 million tax loss carryforward and sell off their pre- merger assets at the end of 5 years. He expects earnings before taxes of the combined company to average $35 million each year during this time and that the assets could be sold for $20 million. Without the acquisition, the controller believes NCC's earnings before tax would average $30 million over the 5 years. NCC currently has no tax loss carryforwards of its own. A. Based on the controller's estimates, what will be the combined company's tax liability and earnings after taxes each year over the next 5 years? The $20 million sale proceeds estimate is not applicable here. (Show all work/calculations.) B. What would NCC's tax liability and earnings after tax be over the next 5 years without the acquisition? (Show all work/calculations.) C. Looking at the controller's recommendation, If Portable can be acquired for $43,607,288 in cash, would NCC benefit based on tax and asset sale considerations? Briefly explain. (Show all work/calculations.) pertinent financial data is included in the tables below. The applicable corporate tax rate is 21%. Table 1: Estimated Incremental Cash Flows over 5 years for combined company $19,400,000 Year 1 Year 2 $ 19,100,000 Year 3 $20,100,000 Year 4 $ 22,550,000 Year 5 $ 17,100,000 Table 2: Portable Coffee Express Earnings Year EPS Year EPS 2013 $1.85 2017 $2.95 2014 $2.00 2018 $3.25 2015 $2.20 2019 $3.45 2016 $2.65 2020 $3.70 Assets Table 3: Portable Coffee Express Balance Sheet (December 31, 2020) Liabilities & Equity Cash $3,000,000 Current liabilities $3,600,000 Accounts Receivable 2,000,000 Mortgages payable 5,900,000 Inventory 7,000,000 Common stock 14,800,000 Land 7,250,000 Retained Earnings 9,700,000 Fixed assets (net) 14,750,000 Total Liabilities & Equity $34,000,000 Total Assets $ 34,000,000 Table 4: NCC and Portable additional data (December 31, 2020) Item NCC Earnings available for $29,000,000 Portable $12,580,000 common stock Number of shares of 7,000,000 3,400,000 Common stock Market price per share $ 43.30 $19* (*Estimated by NCC) 1 2 A B D E Tax Loss Carryforward 150,000,000 3 Amount of Carryforward 4 Part A Year Earnings Credited for the Year Tax Liability E.A.T. 5 1 6 2 7 3 8 9 345 5 10 0 0 11 12 Amount of Carryforward 13 Year Earnings Credited for the Year Tax Liability E.A.T. 14 Part B 15 16 17 18 12345 0 0 0 0 0 19 20 21 22 Part C 23 24 25 G Tax Rate 21% H