Trammel Corporation Is Considering a Capital Budgeting Project That Would

Multiple Choice

Trammel Corporation is considering a capital budgeting project that would require investing $280,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $650,000 and annual incremental cash operating expenses would be $450,000. The project would also require a one-time renovation cost of $100,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 7%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
-The income tax expense in year 2 is:

A) $9,000
B) $30,000
C) $39,000
D) $60,000