Suppose a C corporation has a tax loss in the current period of $10 million, but has been profitable in the past, earning approximately $3 million dollars per year for the last 5 years. The tax code allows the firm to carryback losses for up to 5 years. The top statutory tax rate for the past years was 35% and for the foreseeable future is 21%. Assume an after-tax discount rate of 8% and future taxable income per annum of $4 million.

a. What is the firms marginal tax rate?

b. What is the firms marginal tax rate if the top statutory tax rate is expected to increase to 28% within the next 2 years?