Question - Gutshall Corporation is considering a capital budgeting project that would involve investing $228,000 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 $640,000 and the annual incremental cash operating expenses would be $490,000. A one-time renovation expense of $60,000 would be required in year 3. The project would require investing $26,000 of working capital in the project immediately, but this amount would be recovered at the end of the project in 4 years. The company's income tax rate is 30% and its after-tax discount rate is 13%.
The company uses straight-line depreciation on all equipment.
Calculate the income tax expense in year 3.
A. $9,900
B. $45,000
C. $19,200
D. $27,900