Last 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

This problem can be worked very easily¾just multiply the increase in depreciation by (1 - T)to get the decrease in net income:
 11ea1b84_8b76_7332_a54a_d7b567a2344a_TB3581_00 
We can also get the answer a longer way, which explains things more clearly:
 11ea1b84_8b76_7333_a54a_a1d92a7d76ab_TB3581_00

Last Year Tiemann Technologies Reported $10, 500 of Sales, $6