Ford motor company is considering launching a new line of plug-in electric suvs. the heavy advertising expenses associated with the new suv launch would generate operating losses of $35 million next year. without the new suv, ford expects to earn pre-tax income of $80 million from operations next year. ford pays a 30% tax rate on its pre-tax income.

the amount that ford motor company owe in taxes next year without the launch of the new suv is closest to:

a) $24.0 million
b) $56.0 million
c) $31.5 million
d) $13.5 million

the amount that ford motor company owe in taxes next year with the launch of the new suv is closest to:

a) $13.5 million
b) $31.5 million
c) $56.0 million
d) $24.0 million

(a) Option (A) is correct.

(b) Option (A) is correct.

Explanation:

Given that,

With the new SUV launch,

Generate operating losses = $35 million next year

Without the new SUV,

Expects to earn pre-tax income = $80 million from operations next year

Tax rate on its pre-tax income = 30%

(a) The amount that Ford Motor Company owe in taxes next year without the launch of the new SUV is closest to:

= Expected pre-tax income × Tax rate on its pre-tax income

= $80 Million × 30%

= $24 Million

(b) The amount that Ford Motor Company owe in taxes next year with the launch of the new SUV is closest to:

= ( Expected pre-tax income - operating losses) × Tax rate on its pre-tax income

= ($80 Million - 35 Million) 30%

= $13.5 Million

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