Magellen Industries Is Analyzing a New Project

Multiple Choice

Magellen Industries is analyzing a new project. The data they have gathered to date is as follows: Initial requirement for equipment: $120,000
Depreciation: Straight-line to zero over the four-year life of the project with no salvage value.
Required rate of return: 15%
Marginal tax rate: 35%
What is the net income under the worst-case scenario?

A) -$11,575
B) -$7,524
C) $1,316
D) $4,051
E) $7,524