Inotherwords,thetaxbenefitfromR&Dexpensingallows
us to add the difference between R&D expense and
amortization directly to the after-tax operating income.
ILLUSTRATION3.6:TaxBenefitfromExpensing:Ciscoin
2005
Earlier in this chapter, we capitalized R&D expenses for
Cisco and estimated the value of the research asset and
adjustedoperatingincome.ReviewingIllustration3.2,wesee
the following adjustments.
To estimatethetaxbenefit fromexpensingfor Cisco,first
assumethatthetaxrateis36.80%andnotethatCiscocan
deduct the entire $3,322 million for tax purposes.
Ifonlytheamortizationhadbeeneligibleforataxdeduction,
the tax benefit would have been:
Byexpensinginsteadofcapitalizing,Ciscowasabletoderive
alarger taxbenefit ($1,222millionversus$1,207million).
The differential tax benefit can be written as: