Question: Consider the example in Table 4.6. Suppose that losses are fully tax-deductible. What is the expected after-tax profit in this case? (1) 2) (3) Pre-tax

Consider the example in Table 4.6. Suppose that losses are fully tax-deductible. What is the expected after-tax profit in this case?

(1) 2) (3) Pre-tax operating income Taxable income Tax @ 40% [0.4 (2)] After-tax income [(2)-(3)] Price= $9 $1 $0 0 $1 Price= $11.20 $1.20 $1.20 $0.48 $0.72

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