The Herrmann Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future.
However, in 2006 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time it files its 2006 income tax return, and it will receive a check from the U.S. Treasury.
Show how it calculates this credit, and then indicate the firm's tax liability for each of the next 5 years. Assume a 40 percent tax rate on all income to ease the calculations.