A stationery company 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?
A) It will increase taxes by $8 million.
B) It will increase taxes by $2.8 million.
C) It will have no effect on taxes.
D) It will reduce taxes by $2.8 million.

Question

Quizplus · Accepted Answer

D) $8 × 0.35 = $2.8 million

A Stationery Company Plans to Launch a New Type of Indelible