Question

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 25%. 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

Answer 1

Answer:

The answer is given below;

Explanation:

                                       Before                      After

Sales                              10,500                     10,500

Operating Costs             6,250                       6,250

Depreciation                  1,300      (1300+750)  2,050

Interest on bond 6,000*6.5% 325                    325

Net income before tax   3,275                        2,525

Income Tax                     819                               631

Net income after tax       2,456                         1,894

The net income after tax is $2,456 before increase in depreciation but it is $1,894 after increase in depreciation.It may be pointed out from above working that as a result of increase in depreciation, the income tax is reduced to $631 from $819