Question

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

Answer 1

b. -$0.202 million

Step-by-step explanation:

Missing word "The company uses the same depreciation calculations for tax and stockholder reporting purposes. Multiple choice a. -$0.232, b. -$0.202, c. -$0.155, d. -$0.193"

As depreciation is expected to increase this year by $0.31 million, therefore expenses will increase and will result in decrease in income before tax by $0.31 million

Additional tax saving on increase in depreciation = $0.31 * 35% = $0.108 million

Total change in net income = -$0.31 + $0.108 = -$0.202 million