If a Target Company in an Acquisition Has Operating Loss

question 79

True/False

If a target company in an acquisition has operating loss carry-forwards that cannot be fully utilized, the acquiring company can use them to reduce the tax bill of the combined firm.

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Definitions:

Break-Even Sales

The amount of revenue required to cover both the fixed and variable costs of production.

Actual Sales

The exact amount of sales revenue that a company has generated over a specific period, as opposed to projected or forecasted sales.

High-Low Method

A technique used in cost accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.

Mixed Cost

Mixed cost refers to a cost that contains both variable and fixed cost elements, meaning it changes with the level of activity but not directly proportionate.