Question

A stationery company plans to launch a new type of indelible ink pen. Advertising for the new product will be heavy and will cost the company $ 12 ​million, although the company expects general revenues of​ $280 million next year from sources other than sales of the new pen. If the company has a corporate​ tax-rate of 40​% on its pretax​ income, what effect will the advertising for the new pen have on its​ taxes?

Answer 1

$4.8 million reduction

Step-by-step explanation:

Given that

Cost to the company = $12 million

Expected to generate revenues next year = $280 million

Corporate tax rate = 40%

Based on the above information, the effect would be

The cost to the company is treated as an expense and therefore it is deducted from the revenue. Moreover, there is a reduction of $4.8 million i.e come from

= $12 million × 40%

= $4.8 million

This amount is shown reduction in taxes