When income taxes are considered in capital budgeting, the cash flows related to a company's advertising expense would be correctly figured by taking the cash paid for advertising and subtracting the result of multiplying [advertising expense × (1 - tax rate)].

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This formula accounts for the tax savings due to the deduction of advertising expenses on income taxes. The after-tax cash flow from advertising expense is calculated as the cash paid for advertising minus the tax savings, which can be found by multiplying the advertising expense by (1 - tax rate).

When Income Taxes Are Considered in Capital Budgeting, the Cash