Question
Last year, a company reported $17,000 of sales, $5,500 of operating costs other than depreciation, and $800 of depreciation. The company had no amortization charges,
Last year, a company reported $17,000 of sales, $5,500 of operating costs other than depreciation, and $800 of depreciation. The company had no amortization charges, it had $4,000 of bonds outstanding that carry a 6.0% interest rate, and its federal-plus-state income tax rate was 21%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $600. 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.
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