In Step 2, we projected the tax rate as 40%, a round number approximation of the MRY tax rate. We still like our round, 40% all-in tax rate, but will bifurcate taxes into federal and state/local taxes in this step. Assuming a 3% state/local tax rate, we manually dial in a federal tax rate that targets a combined tax rate of 40%. Then, we replace the projected tax rate assumptions on the income statement with the new ones from our tax schedule. It will become clear why we are doing this in the next two steps.