Mulford Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 12%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. 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 3 is:
A) $15,000
B) $6,000
C) $9,000
D) $3,000

Question

Mulford Corporation has provided the following information concerning a capital budgeting project:  The company's income tax rate is 30% and its after-tax discount rate is 12%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. 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 3 is:
A) $15,000 
B) $6,000 
C) $9,000 
D) $3,000

Quizplus · Accepted Answer

Depreciation expense = (Original cost − Salvage value) ÷ Useful life
= ($80,000 − $0) ÷ 4 years = $20,000 per year
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Mulford Corporation Has Provided the Following Information Concerning a Capital