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Problem 1: Diaz Corporation has a tax loss of $5 million in the current period. The firm's after-tax discount rate is 10%. Assume Diaz is
Problem 1: Diaz Corporation has a tax loss of $5 million in the current period. The firm's after-tax discount rate is 10%. Assume Diaz is allowed to carry back losses. Assume that the statutory rate in the future will be 30%. Over the preceding 5 years, the firm reported the following taxable income: -5 -4 -1 Year -3 -2 $1.50 $4.00 35% 35% Current -$5.0 $1.00 Taxable income ($ millions) Statutory tax rate $1.00 40% $3.00 30% 40% 30% a). Suppose the firm is prohibited from carrying back losses, what is its marginal tax rate assuming it will earn $2 million in each of the next 5 years? b). Suppose the carryback period is 2 years and taxable income in period -1 was only $1 million. What is the firm's marginal tax rate in the current period? PLEASE INPUT ANSWERS AFTER ROUNDING TO 2 DECIMAL POINTS
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