Your bosses at ABC CPAs email you a question. One client, XYZ Company, recently computed the research and development tax credit of $400,000. This will result in a tax credit on their Form 1120 of $60,000 (15%).

On the other hand, they are uncertain that all $400,000 will be considered eligible costs. They think that $80,000 of those costs will most likely be denied by the IRS sometime in the future.

 Write an email back to your bosses. what circumstances is using the option pricing model more useful than the discounted cash-flow method?