Please help and show all work, thank you. Freiman Corporation is considering inv
ID: 2465938 • Letter: P
Question
Please help and show all work, thank you.
Freiman Corporation is considering investing in a project that would have a 4 year expected useful life. The company would need to invest $152,000 in equipment that will have zero salvage value at the end of the project. Annual incremental sales would be $480,000 and annual cash operating expenses would be $285,000. In year 3 the company would have to incur one-time renovation expenses of $88,000. Working capital in the amount of $10,000 would be required. The working capital would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment.
The income tax expense in year 2 is:
Freiman Corporation is considering investing in a project that would have a 4 year expected useful life. The company would need to invest $152,000 in equipment that will have zero salvage value at the end of the project. Annual incremental sales would be $480,000 and annual cash operating expenses would be $285,000. In year 3 the company would have to incur one-time renovation expenses of $88,000. Working capital in the amount of $10,000 would be required. The working capital would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment.
The income tax expense in year 2 is:
Explanation / Answer
Initial investment = $152,000
salvage value at the end of the project= 0
expected useful life = 4 years
Depreciation = asset - salvage value/ life of asset = (152000-0 )/ 4 = 38000
Annual incremental sales = $480,000
Annual cash operating expenses = $285,000
Net income before depreciaton and tax (a) = 195000
Less- depreciation = 38000
Net income after depreciaton befor tax 157000
Income tax expense in year 2 @30% = 157000 * 30% = 47100