Question

GMC 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 $30 million next year. Without the new SUV, GMC expects to earn pre-tax income of $80 million from operations next year. GMC pays a 30% tax rate on its pre-tax income.

Required:
1. The amount that GMC owes in taxes next year with the launch of the new SUV is closest to __________.

Answer 1

$24 million

Step-by-step explanation:

Given that

Tax rate = 30%

Pre-tax income = $80 million

The calculation of pre-tax income next year is shown below:-

The 30% taxes on pre-tax income × $80 million next year

= 30% × $80 million

= $24 million

Therefore, SUV is not introduced so here we will not consider the operating loss for the next year $30 million.