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 35%. The income tax expense in year 2 is:
A) $7,000
B) $10,500
C) $17,500
D) $28,000

Question

Quizplus · Accepted Answer

Depreciation expense = (Original cost - Salvage value) ÷ Useful life
= ($120,000 - $0) ÷ 4 years = $30,000 per year
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Halwick Corporation Is Considering a Capital Budgeting Project That Would