A corporate taxpayer, whois subject toa marginal state and federal tax rate of 30 percent, is considering twomutually exclusive alternatives. Alternative A is tohire a public accounting firm at a cost of $5,000 toundertake research on a tax avoidance plan. If the plan is successful, it will save the corporation $4,900 in federal income taxes. The probability of success for the plan is 75 percent. Alternative B is tohire a marketing firm at a cost of $4,500 todevelop a new marketing strategy. If it is successful, the new marketing strategy would generate new revenues of $5,500. The probability of such success is 80 percent.
Which alternative should the corporation choose?

Question

A corporate taxpayer, whois subject toa marginal state and federal tax rate of 30 percent, is considering twomutually exclusive alternatives. Alternative A is tohire a public accounting firm at a cost of $5,000 toundertake research on a tax avoidance plan. If the plan is successful, it will save the corporation $4,900 in federal income taxes. The probability of success for the plan is 75 percent. Alternative B is tohire a marketing firm at a cost of $4,500 todevelop a new marketing strategy. If it is successful, the new marketing strategy would generate new revenues of $5,500. The probability of such success is 80 percent. 
Which alternative should the corporation choose?

Quizplus · Accepted Answer

The Answer of A corporate taxpayer, whois subject toa marginal state and federal tax rate of 30 percent, is considering twomutually exclusive alternatives. Alternative A is tohire a public accounting firm at a cost of $5,000 toundertake research on a tax avoidance plan. If the plan is successful, it will save the corporation $4,900 in federal income taxes. The probability of success for the plan is 75 percent. Alternative B is tohire a marketing firm at a cost of $4,500 todevelop a new marketing strategy. If it is successful, the new marketing strategy would generate new revenues of $5,500. The probability of such success is 80 percent. 
Which alternative should the corporation choose?

A Corporate Taxpayer, Whois Subject Toa Marginal State and Federal