Suppose a C corporation has a tax loss of $10 million in the current period. The firms after-tax discount rate is 10%. Assume the firm is allowed to carry back losses to prior years. Over the preceding 5 years, the firm reported the following taxable income:

If the carryback period is 3 years, what is the firms marginal tax rate in the current period? If the carryback period is 5 years, what is the firms marginal tax rate in the current period? Suppose the firm is prohibited from carrying back losses, what is its marginal tax rate assuming it will earn $3 million in each of the next 5 years (and the statutory tax rate will not change)? Suppose the carryback period is 2 years and taxable income in period -1 was only $1 million. What is the firms marginal tax rate in the current period assuming the future statutory tax rate is 38% and the firm earns $3 million in each of the next 5 years?

TaxableIncome($millions)StatutorytaxrateYear5$2.035%4$2.035%3$3.035%2$5.032%1$6.030%Current$10.028% TaxableIncome($millions)StatutorytaxrateYear5$2.035%4$2.035%3$3.035%2$5.032%1$6.030%Current$10.028%