Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and...

Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 21%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $725. By how much will the depreciation change cause the firm's net after-tax income and its net cash flow to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.

Answer choices:

A; -$383.84; $206.68

B; -$572.75; $152.25

C; -$471.25; $253.75

D; -$404.04; $217.56

E; -$447.69; $241.06

Expert Solution

The increase in depreciation by $725 would reduce net income and increase cash flow

Reduction in net income after taxes	-725*(1-Tax rate)
Reduction in net income after taxes	-725*(1-0.21)
Reduction in net income after taxes	-$572.75

Increase in cash flow	725*21%
Increase in cash flow	$152.25

Thus, increase in depreciation would reduce net income after taxes by -$572.75 and increase cash flow by $152.25

jeff jeffy answered 2 years ago

Last year Tiemann Technologies reported $10,500 of sales, $6,250 of operating costs other than depreciation, and...

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 $540. By how much will net after-tax income change as a result of the change in depreciation?...

Last year, Stewart-Stern Inc. reported $11,250 of sales, $4,500 of operating costs other than depreciation, and...

Last year, Stewart-Stern Inc. reported $11,250 of sales, $4,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds outstanding that carry a 6.50% interest rate, and its federal-plus-state income tax rate was 35.00%. During last year, the firm had expenditures on fixed assets and net operating working capital that totaled $2,000. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. This year's data are expected to...

A company reported $750,000 of sales, 75% of operating costs other than depreciation, and $7,500 of...

A company reported $750,000 of sales, 75% of operating costs other than depreciation, and $7,500 of depreciation. It had $75,000 of bonds that carry a 7.5% interest rate, and its tax rate was 25%. How much was its net cash flow?

Houston Pumps recently reported $172,500 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation.

Houston Pumps recently reported $172,500 of sales, $140,500 of operating costs other than depreciation, and $9,250 of depreciation. The company had $35,250 of outstanding bonds that carry a 6.75% interest rate, and its federal-plus-state income tax rate was 25%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to spend $15,250 to buy new fixed assets and to invest $6,850 in net operating working capital. What was the firm's free cash...

AT&T recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and...

AT&T recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $1,100 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 35%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much...

Last year Almazan Software reported $10.500 million of sales, $6.250 million of operating costs other than...

Last year Almazan Software reported $10.500 million of sales, $6.250 million of operating costs other than depreciation, and $1.300 million of depreciation. The company had $5.000 million of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 25%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $0.670 million. By how much will net income change as a result of the change in depreciation? The...

Shrives Publishing recently reported $11,500 of sales, $5,500 of operating costs other than depreciation, and $1,250...

Shrives Publishing recently reported $11,500 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 25%. During the year, the firm had expenditures on fixed assets and net operating working capital that totaled $1,550. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. What was its free cash flow? (Round your...

Shrives Publishing recently reported $11,750 of sales, $5,500 of operating costs other than depreciation, and $1,250...

Shrives Publishing recently reported $11,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. During the year, the firm had expenditures on fixed assets and net operating working capital that totaled $1,550. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. What was its free cash flow? (Round your...

Watson Oil recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation,...

Watson Oil recently reported (in millions) $8,250 of sales, $5,750 of operating costs other than depreciation, and $850 of depreciation. The company had $3,200 of outstanding bonds that carry a 5% interest rate, and its federal-plus-state income tax rate was 25%. In order to sustain its operations and thus generate future sales and cash flows, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how...

Boston Inc. recently reported $125,000 of sales, $75,500 of operating costs other than depreciation, and $10,200...

Boston Inc. recently reported $125,000 of sales, $75,500 of operating costs other than depreciation, and $10,200 of depreciation. The company had $16,500 of outstanding bonds that carry a 7.25% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder reporting purposes. (Round your intermediate and final answers to two decimal places.)

Question