Whatever the analyst chooses to do with respect to the selection of a tax rate, it is critical to use the marginal rate in calculating after-tax operating income in perpetuity. Otherwise, the implicit assumption is that taxes can be deferred indefinitely.

Question

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Using the marginal rate in perpetuity ensures that the analysis takes into account the ongoing impact of taxes on after-tax operating income. Failure to use this rate would assume that taxes could be deferred indefinitely, which is not realistic.

Whatever the Analyst Chooses to Do with Respect to the Selection