Layer Corporation has provided the following information concerning a capital budgeting project: Investment required in equipment$160,000 Expected life of the project 4 Salvage value of equipment$0 Annual sales$360,000 Annual cash operating expenses$290,000 Working capital requirement$20,000 One-time renovation expense in year 3$20,000 The company's income tax rate is 30% and its after-tax discount rate is 8%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. 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:
A. $9,000
B. $6,000
C. $3,000
D. $21,000
Answer: A
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