Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

13. Last year, Saran Company has $13,400,000 of sales, $7,300,000 of operating costs (excluding depreciation), and $1,500,000 of depreciation. The company has $6,500,000 of bonds

13. Last year, Saran Company has $13,400,000 of sales, $7,300,000 of operating costs (excluding depreciation), and $1,500,000 of depreciation. The company has $6,500,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate is 40%. During last year, the firm has expenditures on fixed assets and net operating working capital that total $2,000,000. These expenditures are necessary for it to sustain operations and generate future sales and cash flows. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $810,000. The company uses the same depreciation calculations for tax and stockholder reporting purposes. What is the effect of the change in depreciation on the net income and the free cash flow? *
6 points
The net income will decrease by $486,000, and the free cash flow will increase by $342,000.
The net income will decrease by $810,000, and the free cash flow will decrease by $324,000.
The net income will decrease by $1,658,000, and the free cash flow will increase to $2,584,000.
The net income will decrease by $2,001,000, and the free cash flow will decrease to $2,584,000.
None of the above
14. The sales of Fiery Corporation for last year are $320,000, and its year-end total assets are $430,000. The industry average of total assets turnover ratio (TATO) is 2.5. The new CFO believes that the corporation has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much should the assets be reduced to bring the TATO to the industry average, holding sales constant? *
6 points
$128,000
$172,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics Private And Public Choice

Authors: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

17th Edition

0357133994, 9780357133996

More Books

Students also viewed these Accounting questions