Question

Brutus Co plans to launch a new type of indelible ink pen. Advertising for the new product will be heavy and will cost the company $8 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 35% on its pretax income, what effect will the advertising for the new pen have on its taxes

Answer 1

It will decrease Brutus Co taxes by $2,400,000

Step-by-step explanation:

The company's tax rate is 30% and advertising expense is tax deductible, so their tax liability will be reduced by $8,000,000 x 30% = $2,400,000. Even if the company is advertising a new product, any amount of money spent will be included in the income statement under operating expenses.