Question
Suppose a C corporation has a tax loss of $5 million in the current period. The firms after-tax discount rate is 10%. Assume the firm
Suppose a C corporation has a tax loss of $5 million in the current period. The firms after-tax discount rate is 10%. Assume the firm is allowed to carry back losses. Over the preceding 5 years, the firm reported the following taxable income:
| Year | ||||||
| -5 | -4 | -3 | -2 | -1 | Current | |
| Taxable income (loss) in millions | $1.0 | $1.0 | $1.5 | $4.0 | $3.0 | -$5.0 |
| Statutory tax rate (STR) | 40% | 40% | 35% | 35% | 30% | 30% |
- Suppose the firm is prohibited from carryback losses but is allowed to carryforward losses up to 5 years. Additionally, assume that the tax rate will switch to 20% starting in year T+1 (next year) and continue at that rate for the foreseeable future. What is its marginal tax rate assuming it will earn $1 million in each of the next 5 years?
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Modern Advanced Accounting In Canada
Authors: Hilton Murray, Herauf Darrell
7th Edition
1259066487, 978-1259066481
