Suppose a firm is equally likely to earn 2 million this

Reference no: EM13581459

Suppose a firm is equally likely to earn $2 million this year or lose $3 million. The firm faces a tax rate of 40% on each dollar of taxable income, and the firm pays no taxes on losses. In this simple one-period scenario, ignore the carryback and carryforward rules. The firm%u2019s expected taxable income is thus a loss of $500,000 calculated as .50(-$3) + .50($2). What is the firm%u2019s expected marginal tax rate?

Reference no: EM13581459

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