American Century Corp. is considering acquiring Southern Homes, Inc. Southern Homes has a tax loss carryforward of \$240,000. Projected earnings for American Century Corp. are as follows:
| 201x | 201y | 201z | Total Values | |
| Before-tax income | $80,000 | $70,000 | $180,000 | $330,000 |
| Taxes (30%) | 24,000
|
21,000
|
54,000
|
99,000
|
| Income available to stockholders | $56,000 | $49,000 | $126,000 | $231,000 |
a. How much of American Century’s total taxes can be reduced by the tax loss carryforward? Keep in mind its tax rate is 30 percent as shown above.
b. How much will the total income to shareholders be for each year if the acquisition occurs? Use the same approach as that shown on pages 622 and 623 of the chapter.
