Taxes on operating loss?

[archived_user]

In example 7 under Capital Budgeting, the solution shows an “Operating Income Before Taxes” as -$30K. The margin tax rate is 30%. “Taxes on Operating Income” as -$9K, and “After Tax Operating Income” as -$21K.
How can they get back $9K in taxes if they have an operating loss? My understand is that the loss would be carry forward to future profitable years as a tax shield.

 

[archived_user]

I think it’s because of the capital budgeting assumptions in the beginning of the reading, CFAI pg. 8
4. Cash flows are analyzed on an after-tax basis. Taxes must be fully reflected in all capital budgeting decisions.

 

[archived_user]

You are correct in understanding that the losses will be carried forward and adjusted with next year’s or future profits.
In reality or in some advanced level of capital budgeting sums this is what is done.
However at initial or intermediate level of Capital budgeting the tax saving on losses is taken immediately.
Even I don’t know the exact answer to this so maybe I’m wrong but I think capital budgeting being a corporate finance subject, it does not always follow all income tax laws and quite often simplify the income tax techniques. The reason I believe is that Capital Budgeting is a universal technique while Income Tax laws vary from country to country.