Problem 8-43 (LO. 7, 9)

B.I.G. Corporation sold a plot of undeveloped land to SubCo this year for $100,000. B.I.G. had acquired the land several years ago for $40,000. The consolidated return also reflects the operating results of the parties: B.I.G. generated $130,000 income from operations (exclusive of the sale of the land), and SubCo produced a $20,000 operating loss.

Using a 25% combined state and Federal income tax rate compute the benefit to the group of deferring the gain on the sale of the land. The B.I.G. group uses a 4% after-tax internal rate of return for purposes of this analysis. The present value factor at 4% for 5 years is 0.8219.

Round your answers to the nearest dollar.

Present value of the tax on the sale of the land, as deferred for 5 years is _____________. Therefore, the net tax benefit to the group as a result of the deferral would be _________________.