Lafromboise Corporation has provided the following information concerning a capital budgeting project: After-tax discount rate 6 % Tax rate 30 % Expected life of the project 4 Investment required in equipment $ 240,000 Salvage value of equipment $ 0 Working capital requirement $ 10,000 Annual sales $ 690,000 Annual cash operating expenses $ 490,000 One-time renovation expense in year 3 $ 100,000 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. The income tax expense in year 3 is:

$30,000

$12,000

$60,000

$42,000