Stepnoski Corporation Is Considering a Capital Budgeting Project That Would

Multiple Choice

Stepnoski Corporation is considering a capital budgeting project that would involve investing $280,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life.Annual incremental sales from the project would be $610,000 and the annual incremental cash operating expenses would be $490,000.A one-time renovation expense of $20,000 would be required in year 3.The project would require investing $30,000 of working capital in the project immediately,but this amount would be recovered at the end of the project in 4 years.The company's income tax rate is 35% and its after-tax discount rate is 11%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $17,500
B) $10,500
C) $7,000
D) $42,000