(Appendix 8C) Lucarell Corporation has provided the following information concer

Question

(Appendix 8C) Lucarell Corporation has provided the following information concerning a capital budgeting project: After-tax discount rate 6% Tax rate 35% Expected life of the project 4 Investment required in equipment $160,000 Salvage value of equipment $0 Working capital requirement $30,000 Annual sales $420,000 Annual cash operating expenses $310,000 One-time renovation expense in year 3 $40,000 The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is: $24,500 $14,000 $10,500 $38,500

Please show all work.

Explanation / Answer

Ans is C $10,500

Initial Investment 160000 Discount Rate 6% Life 4 Tax Rate 35% Depreciation per year 40000 NWC 30000 Renovation Expense Year 3 40000 Tax in Year 3 Annual Sales 420000 Annual Cash Operating expenses 310000 Renovation Expense Year 3 40000 Income before depreciation 70000 Depreciation 40000 Income after depreciation 30000 Tax @ 35% 10500

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.