Kellog Corporation Is Considering a Capital Budgeting Project That Would

Multiple Choice

Kellog Corporation is considering a capital budgeting project that would have a useful life of 4 years and would involve investing $160,000 in equipment that would have zero salvage value at the end of the project. Annual incremental sales would be $390,000 and annual cash operating expenses would be $260,000. The company uses straight-line depreciation on all equipment. Its income tax rate is 35%. The income tax expense in year 2 is:

A) $7,000
B) $45,500
C) $31,500
D) $24,500