Harnischfeger Corporation was a mining machinery and equipment company based in Wisconsin. The company voluntarily changed its depreciation accounting policy from the accelerated method to the straight-line method. It disclosed the cumulative effect of this accounting policy change, equal to \($11.005\) million (net of applicable income taxes), in its financial statements. In addition, the company also voluntarily changed the estimated useful lives of certain of its U.S. plant and equipment. This estimate change increased its pretax reported profit by \($3.2\) million. The following are selected excerpts from the company’s financial statements:

Calculate Harnischfeger’s sustainable earnings. In general, how would the capital market react to the company’s decision to change its depreciation accounting policy and to change the estimated useful lives of its depreciable assets? Why?

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Income before income taxes, equity items, and cumulative effect of accounting method change.. Provision for income taxes... Income after taxes Equity items... Cumulative effect of change in depreciation method Net income... (in thousands) $ 5,738 (2,425) 3,313 858 11,005 $15,176