Question

Ford Motor Company is considering launching a new line of hybrid diesel-electric SUVs. The heavy advertising expenses associated with the new SUV launch would generate operating losses of million next year. Without the new SUV, Ford expects to earn pre-tax income of $80 million from operations next year. Ford pays a 35% tax rate on its pre-tax income. The amount that Ford Motor Company owes in taxes next year without the launch of the new SUV is closest to ________ million.

Answer 1

$28 million

Step-by-step explanation:

Without the new SUV, Ford expects to earn pre-tax income of $80 million next year. Now as the SUV is not launched, we would not account for operating losses of $35 million next year. So, the Ford pays taxes on pre-tax income of $80 million next year without the new SUV launch.

The amount that Ford Motor Company owes in taxes next year:

= Tax rate * Pre-tax income

= 35% * $80 million

= $28 million

So, the amount that Ford Motor Company owes in taxes next year without the launch of the new SUV is $28 million