Nakama Corporation Is Considering Investing in a Project That Would

question 59

Multiple Choice

Nakama Corporation is considering investing in a project that would have a 4 year expected useful life.The company would need to invest $280,000 in equipment that will have zero salvage value at the end of the project.Annual incremental sales would be $640,000 and annual cash operating expenses would be $480,000.In year 3 the company would have to incur one-time renovation expenses of $50,000.Working capital in the amount of $20,000 would be required.The working capital would be released for use elsewhere at the end of the project.The company's tax rate is 35%.The company uses straight-line depreciation on all equipment. The income tax expense in year 2:

• A) $56,000
• B) $14,000
• C) $17,500
• D) $31,500