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Ford Motor Company is considering launching a new line of hybrid diesel-electric 4WDs. The heavy advertising expenses associated with the new 4WD launch would generate operating losses of $40 million next year. Without the new 4WD, Ford expects to earn pre-tax income of $75 million from operations next year. Ford pays a 25% tax rate on its pre-tax income.
-The amount that Ford Motor Company owes in taxes next year with the launch of the new 4WD is closest to:
A)$13.55 million
B)$18.75 million
C)$8.75 million
D)$16.75 million

Question

Quizplus · Accepted Answer

With the launch of the new 4WD, Ford's pre-tax income would be $75 million - $40 million = $35 million. At a 25% tax rate, the taxes owed would be 25% of $35 million = $8.75 million.

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