Merry Christmas everybody, I have a quick question I need help with that I came across while looking over some materials. Here's the question:
"Assume that you are trying to estimate the after-tax operating income for a firm with $1 billion in net operating losses carried forward. This firm is expected to have operating income of $500 million each year for the next 3 years, and the marginal tax rate on income for all firms that make money is 40%. Estimate the after-tax operating income each year for the next 3 years."
I know this is a basic question but was stuck on exactly what to do with the operating losses. The first thing I would think to do to solve this problem would be to target an industry-average operating margin for the firm, but that's obviously not what the problem wants you to do here.
Dont think you can answer that with the info you gave. You need to figure out how much of the nol can be used in each year going forward. Whatever that amount is, you tax affect it, along with the EBIT in each year. Pretty simple, but again, you need to know how much of that $1bn nol can be used in each of the three years.
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