Use this information for the next two problems.

Rech Company is considering acquiring Ocean Company, a firm that has had big tax losses over the past few years. As a result of the acquisition, Rech calculates that the total pretax profits of the

merger will not change from their present level for $5$ years. The tax loss carryforward of Ocean is $$800,000,$ and Rech projects that its annual earnings before taxes will be $$280,000$ per year for each

of the next $15$ years. These earnings are assumed to fall within the annual limit legally allowed for application of the tax loss carryforward resulting from the proposed merger. The firm is in the $40\%$ tax bracket. If Rech does not make the acquisition, what will be the company's tax liability and earnings after taxes in Year $3?$ Feel free to use the template below if you wish; however, just put your

answer on the answer sheet, not the whole table.

Tax Loss Carry Forward

After$-$Tax Earnings without a Merger