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 35%.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.

Question

Quizplus · Accepted Answer

The Answer of 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 35%.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.

Last Year,Michelson Manufacturing Reported $10,250 of Sales,$3,500 of Operating Costs