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

question 50

Multiple Choice

(Appendix 8C) 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

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Definitions:

Higher Risk

A condition or scenario involving a greater probability of loss or less certainty of returns, typically demanding a higher risk premium.

Interest Earned

The income received from investment assets before taxes and expenses have been deducted.

Investment

The allocation of money into financial assets, property, or other ventures in the expectation of obtaining an income or profit.

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage.