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

Question

(Appendix 8C) Zangari Corporation has provided the following information concerning a capital budgeting project: After-tax discount rate 15% Tax rate 35% Expected life of the project 4 Investment required in equipment $280,000 Salvage value of equipment $0 Annual sales $620,000 Annual cash operating expenses $470,000 One-time renovation expense in year 3 $50,000 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 2 is: $17,500 $52,500 $28,000 $10,500

Explanation / Answer

Net Income = $620,000(Annual Sales) - $470,000(operating Exp.) - $70,000(Dep = $280,000/4) = $80,000
yera 2 Income Tax Expense = $80,000 x 35% = 28,000

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