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    Merger - Tax loss Carry forward

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    Boardwalk Corporation desires to expand. It is considering a cash purchase of Park Place Corporation for $2,400,000. Park Place has a $600,000 tax loss carryforward that could be used immediately by Boardwalk, which is paying taxes at the rate of 35 percent. Park Place will provide $300,000 per year in cash flow (aftertax income plus depreciation) for the next 20 years. If Boardwalk Corporation has a cost of capital of 11 percent, should the merger be undertaken?

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    Solution Preview

    Please see the attached file

    In order to decide we need to calculate the NPV of the merger.
    The initial investment is $2,400,000 less the tax shield from the loss ...

    Solution Summary

    The solution explains how to evaluate a merger when there is a Tax loss Carry forward