A Stationery Company Plans to Launch a New Type of Indelible

question 106

Multiple Choice

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 $10 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 of 40% on its pretax income,what effect will the advertising for the new pen have on its taxes?

• A)increase taxes by $10 million
• B)increase taxes by $4 million
• C)It will have no effect on taxes.
• D)reduce taxes by $4 million
• E)reduce taxes by $10 million

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Definitions:

Debt Financing

Raising capital through the sale of bonds, bills, or notes to individuals or institutional investors, in exchange for lending money to the borrowing entity.

Equity Financing

The process of raising capital through the sale of shares in a company, thereby giving investors ownership interests.

Financial Viability

The ability of an entity to manage its financial operations so that it can continue to operate and meet its financial obligations.

CFO

Chief Financial Officer, an executive position responsible for managing the financial actions of a company.