Maurer Corporation Is Considering a Capital Budgeting Project That Would

Maurer Corporation is considering a capital budgeting project that would involve investing $200,000 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 $550,000 and the annual incremental cash operating expenses would be $440,000.A one-time renovation expense of $40,000 would be required in year 3.The company's income tax rate is 35%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $7,000
B) $38,500
C) $14,000
D) $21,000