The obvious benefit is that items like tax credits or deferred taxes would be approximately reflected in the business's EP, painting a fairer picture of the business's contribution to corporate EP. Also, if the business unit tax rate is periodically adjusted to account for changes in the corporate average effective rate, management will have some incentive to participate in tax saving strategies. Finally, tax losses in one business can offset profits in other businesses, making it difficult or impossible to know if any given project will actually create a tax liability. The stochastic nature of such an analysis makes the "probabilistic" tax rate resemble the effective rate, or something closer to it than to the marginal rate.

The drawbacks of this treatment are several. First, the corporate effective rate invariably results from certain activities in certain business units that reduce or delay tax payments in very uneven ways. For example, foreign tax credits may be generated by only one of several business units, or one unit may be responsible for most accelerated depreciation creating deferred taxes. Thus, slapping one tax rate on every business unit may distort their relative contribution to consolidated results. Second, on most projects the tax liability would be more than the effective rate. Therefore, using the effective rate for analytical purposes would distort decision making in most cases, possibly making value destroying projects look acceptable. Finally, if the effective rate is the average of more than two or three business units, the motivational effect of periodically adjusting that rate to account for actual taxes will be very weak. In such cases, any tinkering with the effective rate is more likely to be perceived either as "goosing the numbers" or as punitive, depending on the direction taken by the tax rate.