Garfield Industries is expanding its operations throughout the Southeast United States. Garfield anticipates that the expansion will increase sales by $1,000,000, and increase the costs of goods sold by $700,000. Depreciation expenses will rise by $50,000 and interest expense will increase by $150,000. The company's tax rate will remain at 40 percent. If the company's forecast is correct, how much will net income increase or decrease, as a result of the expansion?
A) No change.
B) $40,000 increase.
C) $60,000 increase.
D) $100,000 increase.
E) $180,000 increase.

Question

Quizplus · Accepted Answer

The net income change is calculated as follows: Increase in sales ($1,000,000) - Increase in COGS ($700,000) - Increase in depreciation ($50,000) - Increase in interest expense ($150,000) = $100,000. Tax on $100,000 at 40% = $40,000. Therefore, net income increase = $100,000 - $40,000 = $60,000.

Garfield Industries Is Expanding Its Operations Throughout the Southeast United