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.