Answer:
Income Tax Expense in Year 2 = 32400 USD
Explanation:
The income tax expense can be calculated from the following given data:
First of all we need to find the incremental revenue:
Incremental Revenue = Incremental Sales - Incremental expenses
Incremental Sales = 630,000 USD
Incremental expenses = 456,000 USD
So, plug in the values:
Incremental Revenue = 630,000 USD - 456,000 USD
Incremental Revenue = 174000 USD
Now, we need to find the less annual depreciation:
Less Annual Depreciation = Investment/ Expected Life
Investment = 264,000 USD
Expected Life = 4 years
Less Annual Depreciation = 264,000/4
Less Annual Depreciation = 66000 USD
Now, the next step is to calculate the operating incremental income:
Operating incremental income = Incremental Revenue - Less Annual Depreciation
Incremental revenue = 174000 USD
Less Annual Depreciation = 66000 USD
Operating incremental income = 174000 USD - 66000 USD
Operating incremental income = 108000 USD
30% tax at the operating incremental income is the income tax expense in year 2.
Income Tax Expense in Year 2 = 108000 x 30%
Income Tax Expense in Year 2 = 32400 USD
