(Appendix 8C)Folino Corporation Is Considering a Capital Budgeting Project That

question 83

Multiple Choice

(Appendix 8C) Folino Corporation is considering a capital budgeting project that would require investing $120, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $380, 000 and annual incremental cash operating expenses would be $300, 000.The project would also require an immediate investment in working capital of $10, 000 which would be released for use elsewhere at the end of the project.The project would also require a one-time renovation cost of $30, 000 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 15%.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)$17, 500
• B)$7, 000
• C)$28, 000
• D)$10, 500

---

Definitions:

Marshall McLuhan

A visionary media theorist who proposed that "the medium is the message," emphasizing the impact of media technology on human perception and society.

Papyrus

An early form of writing paper developed by the Egyptians.

Movable Type

Gutenberg’s invention that allowed individual letters or images to be moved without influencing the surrounding text.

Innis's Theories

The ideas and theories of Harold Innis, a Canadian economist and scholar known for his contributions to media theory and economic history, especially the concepts of time-biased and space-biased media.