Assume that Citrus Corporation is considering the acquisition of Orange Juice, Inc. The latter has a $500,000 tax loss carryforward. Projected earnings for the Citrus Corporation are as follows:
2004 2005 2006 Total values
Before-tax income $200,000 $250,000 $380,000 $830,000
Taxes (40%) $80,000 $100,000 $152,000 $332,000
Income available to stockholders $120,000 $150,000 $228,000 $498,000
a. How much will the total taxes of Citrus Corporation be reduced as a result of the tax loss carryforward?
b. How much will the total income available to stockholders be for the three years if th acquisition occurs?
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