Halwick Corporation is considering a capital budgeting project that would have a useful life of 4 years and would involve investing $120,000 in equipment that would have zero salvage value at the end of the project. Annual incremental sales would be $360,000 and annual cash operating expenses would be $280,000. The company uses straight-line depreciation on all equipment. Its income tax rate is 30%.The income tax expense in year 2 is:
A) $6,000
B) $9,000
C) $15,000
D) $24,000

Question

Quizplus · Accepted Answer

The annual depreciation expense is $30,000 ($120,000/4 years). The annual incremental profit before tax is $50,000 ($360,000 - $280,000 - $30,000). The income tax expense is $15,000 ($50,000 * 30%).

Halwick Corporation Is Considering a Capital Budgeting Project That Would