Last year Tiemann Technologies reported $10,500 of sales, $6,250 of operating costs other than depreciation, and $1,300 of depreciation. The company had no amortization charges, it had $5,000 of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1,240. By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.

Question

contestada

Respuesta :

ACCESS MORE ACCESS MORE ACCESS MORE ACCESS MORE

hamzatauseef hamzatauseef · Answer 1 · 2019-12-23T09:31:42+01:00

Answer:

See below.

Explanation:

According to the data, current income before tax is as follows,

Income before tax = (10,500-6250-1300-325) = $2,625

So last year the Income after tax would be = (2625 - (2625*0.35) = $1,706.25

This year the depreciation rises by 1,250 so the total change in net income is as follows,

Income before tax for this year = 2625-1240 = $1385

After tax income = 1385 - (1385*0.35) = $900.25

So the total change in net income over the two years

= 1706.25 - 900.25 = Fall by $806

Hope that helps.