Suppose a firm has a tax loss of 5 million in the current

Reference no: EM13581464

Suppose a firm has a tax loss of $5 million in the current period. The firm%u2019s after-tax discount rate is 10%. Over the preceding 5 years the firm has reported the following taxable income.

-5 -4 -3 -2 -1 Current
Year
Taxable Income ($ millions) $1 $1 $1.5 $3 $3 -$5
Statutory Tax Rate 40% 40% 35% 35% 30% 30%

If the carryback period is 3 years, what is the firm%u2019s marginal explicit tax rate in the current period?
If the carryback period is 2 years, what is the firm%u2019s marginal explicit tax rate in the current period?
Suppose the carryback period is 2 years and taxable income in period -1 was only $1 million. What is the firm%u2019s marginal explicit tax rate (mtr) in the current period? Select from below (only one answer).

The mtr is the same as the answer to a. above
The mtr is the same as the answer to b. above

Can carryback only $4 of the $5 million loss so we still have a $1 million tax loss carryforward and mtr is the PV of the statutory tax rate in the period in which the tax loss carryforward is used up.

Reference no: EM13581464

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