1- NRG, Inc. plans to launch a new line of energy drinks. The marketing expenses associated with launching the new product will generate operating losses of $500 million next year for the product. NRG expects to earn pre- tax income of $7 billion from operations other than the new energy drinks next year. NRG pays a 39% tax rate on its pre-tax income.

1. A) What will NRG owe in taxes next year without the new energy drinks?

2. B) What will it owe with the new energy drinks?

2- Suppose NRGs new energy drink line will be housed in a factory that the company could have otherwise rentedout for $900 million per year. How would this opportunity cost affect NRGs incremental earnings next year?