What is tax advantage of the acquisition each year for baker

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Baker's Manufacturing is evaluating the acquisition of Cuisinaire Appliance. Cuisinaire has a loss carryforward of $1.5 million which resulted from earlier operations. Baker's Oven can purchase Cuisinaire for $1.8 million and liquidate the assets for $1.3 million. Baker's Oven expects earnings before taxes in the five years following the acquisition to be as follows: Year Earnings before Taxes 1 $108,000 2 288,000 3 324,000 4 425,000 5 425,000 (These earnings are assumed to fall within the annual limit legally allowed for application of the tax loss carry-forward resulting from the proposed acquisition.) Baker's Oven is in the 40% tax bracket and has a cost of capital of 17% 1. What is the tax advantage of the acquisition each year for Baker? 2. What is the maximum cash price Baker's would be willing to pay for Cuisinaire? 3. Do you recommend the acquisition? Why or why not?

Reference no: EM13279469

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