A corporate taxpayer, who is subject to a marginal state and Federal tax rate of 30 percent, is considering two mutually exclusive alternatives. Alternative A is to hire a public accounting firm at a cost of $5,000 to undertake 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 to hire a marketing firm at a cost of
$4,500 to develop 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?

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The Answer of A corporate taxpayer, who is subject to a marginal state and Federal tax rate of 30 percent, is considering two mutually exclusive alternatives. Alternative A is to hire a public accounting firm at a cost of $5,000 to undertake 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 to hire a marketing firm at a cost of
$4,500 to develop 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, Who Is Subject to a Marginal State