(Appendix 8C) Wollard Corporation has provided the following information concern

Question

(Appendix 8C) Wollard Corporation has provided the following information concerning a capital budgeting project: Tax rate 30% Expected life of the project 4 Investment required in equipment $80,000 Salvage value of equipment $0 Annual sales $190,000 Annual cash operating expenses $130,000 One-time renovation expense in year 3 $30,000 The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is: $3,000 $12,000 $18,000 $9,000

Please be detailed in your work - Thanks.

Explanation / Answer

Calculation of the income tax expense Depreciation 80000/4 = $ 20000 Sales 190000 Operating Expenses 130000 Net Profit before dep 60000 Less: Depreciation 20000 Profit 40000 Tax @ 30% 12000 The correct option is B. $ 12000

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