# Explicit marginal tax rate

See attachment for question

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

(see attached)

a. If the carryback period I 3 years, what is the firm's marginal explicit tax rate in the current period?

b. If the carryback period is 2 years, what is the firm's marginal explicit tax rate in the current period?

c. Suppose the carryback period is 2 years and taxable in period -1 was only $1 million. What is the firm's marginal explicit tax rate in the current period?

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#### Solution Preview

A. A carrybak period of 3 years means that the company would carry back all its current year loss to receive refunds for taxes paid last year to two years ago (the taxable incomes of the past two years are sufficient to cover the current year's loss).

To determine the company's explicit marginal tax ...

#### Solution Summary

Compute the firm's explicit marginal tax rate given three scenarios