Computation of Tax liability for a specific period.

Collins Co. began operations in 2002. The company lost money the first two years, but has been profitable ever since. The company's taxable income (EBT) for its first four years are summarized below:

Year EBT

2002 -$3.0 million

2003 -5.2 million

2004 4.2 million

2005 8.3 million

The corporate tax rate has remained at 40%. Assume that the company has taken full advantage of the Tax Code's carry-back, carry-forward provisions, and assume that the current provisions were applicable in 1999. What is Collins' tax liability for 2005?

1. a. $3.32 million

2. b. $0.04 million

3. c. $2.84 million

4. d. $1.72 million

5. e. $1.24 million