How do net operating loss carryforwards (NOLs) affect valuation in an M&A context?

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IBPrep · Accepted Answer

NOLs are accumulated tax losses that can offset future taxable income, reducing future cash tax payments. In an acquisition, NOLs can be valuable, but Section 382 of the IRS code caps how much an acquirer can use post-transaction (the annual limit is the target's market value × the applicable federal long-term tax-exempt rate).

How do net operating loss carryforwards (NOLs) affect valuation in an M&A context?

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