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 $750.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

Quizplus · Accepted Answer

The increase in depreciation reduces taxable income, which reduces taxes. The tax savings is the increase in depreciation multiplied by the tax rate: $750 * 35% = $262.50. The net income decreases by the remaining amount of the depreciation increase: $750 - $262.50 = $487.50.

Year Tiemann Technologies Reported $10,500 of Sales, $6,250 of Operating