CathFoods Will Release a New Range of Lollies Which Contain

Multiple Choice

CathFoods will release a new range of lollies which contain antioxidants. New equipment to manufacture the lollies will cost $2 million, which will be depreciated by straight-line depreciation over five years. In addition, there will be $5 million spent on promoting the new product line. It is expected that the range of lollies will bring in revenues of $4 million per year for five years with production and support costs of $1.5 million per year. If CathFood's marginal tax rate is 30%, what are the incremental earnings in the second year of this project?

A) $2.11 million
B) $1.47 million
C) $1.54 million
D) $1.75 million