Question
A corporate taxpayer, who is subject to a marginal federal tax rate of 30% is considering two mutually exclusive alternatives. Alternative A is to hire
A corporate taxpayer, who is subject to a marginal federal tax rate of 30% is considering two mutually exclusive alternatives. Alternative A is to hire a public accounting firm at a cost of $40,000 to undertake research to generate $35,000 of incremental R&D tax credits. The probability of success for the plan is 85%. Alternative B is to hire a marketing firm as a cost of $35,000 to develop a new marketing strategy. If successful, the new marketing strategy would generate revenue of $55,000. The probability of success of the marketing idea is 45%. Which alternative would you choose?
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