Question

Last year Almazan Software reported $10.50 million of sales, $6.25 million of operating costs other than depreciation, and $1.30 million of depreciation. The company had $5.00 million 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 $0.64 million. By how much will net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes. (Round your final answer to 3 decimal places.)

Answer 1

The net income is change by $0.416 million

Step-by-step explanation:

The computation of change in the net income is shown below:

= Increase in depreciation × (1 - federal-plus-state income tax rate)

= $0.64 million × (1 - 35%)

= $0.64 million × 0.65

= $0.416 million

he other items which are presented in the question are irrelevant. Thus, these cost will not be considered in the computation part. Hence, it is ignored