Reference no: EM132085440

Question - Glasco 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	$80,000
Salvage value of equipment	$0
Working capital requirement	$20,000
Annual sales	$240,000
Annual cash operating expenses	$190,000
One-time renovation expense in year 3	$20,000

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.

Calculate the income tax expense in year 2?

$7,000

$3,500

$10,500

$17,500