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

question 26

Multiple Choice

(Appendix 8C) Gutshall Corporation is considering a capital budgeting project that would involve investing $240, 000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life.Annual incremental sales from the project would be $580, 000 and the annual incremental cash operating expenses would be $430, 000.A one-time renovation expense of $70, 000 would be required in year 3.The project would require investing $10, 000 of working capital in the project immediately, but this amount would be recovered at the end of the project in 4 years.The company's income tax rate is 30% and its after-tax discount rate is 13%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

• A)$6, 000
• B)$45, 000
• C)$21, 000
• D)$27, 000

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