Suppose a firm has a tax loss of $5 million 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:

a. If the carryback period is 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 income in period ˆ’1 was only $1 million. What is the firm€™s marginal explicit tax rate in the current period?

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Year Taxable Income (S millions) $1 Statutory Tax Rate -5 -4 -3 -2 Current $1.5 3 3 S5 30% 40% 40% 35% 35% 30%