A Stationery Company Plans to Launch a New Type of Permanent

Multiple Choice

A stationery company plans to launch a new type of permanent marker. 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 rate of 30% on its pre-tax income, what effect will the advertising for the new pen have on its taxes?

A) no effect on taxes
B) increase taxes by $3 million
C) increase taxes by $10 million
D) reduce taxes by $3 million