Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges,
Last year, Michelson Manufacturing reported $10,250 of sales, $3,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds outstanding 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 the depreciation change cause the firm's net after-tax income to change? Note that the company uses the same depreciation calculations for tax and stockholder reporting purposes.
Select the correct answer.
