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See Table below, showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $12 million at the
See Table below, showing financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $12 million at the end of 2013, and this equipment was depreciated by $4 million per year in 2014, 2015, and 2016. Given Mydeco's tax rate of 35%, what impact would this additional purchase have had on Mydeco's net income in years 2013-2016? (Assume the equipment is paid for out of cash and that Mydeco earns no interest on its cash balances.)
Millions (year) | 2013 | 2014 | 2015 | 2016 |
Net income | ||||
additional depreciation | ||||
Tax saving | ||||
NEW NET INCOME |
2012 2013 2014 404.3363.8 424.6510.7 604.1 3 Income Statement 2016 4 Revenue Cost of Goods Sold 6 Gross Profit 7 Sales and Marketi 216 218.4263.9 310.7 102.1) (120.8 Administration 59.1) (59.4) Depreciation & Amortization O EBIT 1 Interest Income (Expense 2 Pretax Income 3 Income Tax 39.4 5 Shares outstanding (millions 0.33 $0.05 $0.11 $0.23 50.39 8 Balance Sheet 9 Assets 2012 2013 2014 2016 43.8 1 Accounts Receivable 69.86 69.8 3 Total Current Assets 171.1169.6 184.5 1361 206.4 245.3243.3 361.7 361.7 361.7361.7361.7 778.1774.6 855.2 893.4 915.1 5 Goodwill& Intangibles 6 TotalAssets 8 Liabilities & Stockholders' 9 Accounts Payable O Accrued Compensation 1 Total Current Liabilities 2 Long term Debt 3 Total Liabilities 4 Stockholders S Toal Liabilies & Stockholders'E 41.4 525.4524.3 252.7 250.3 251.2258.5 273.7 634.9641.4 6 2012 2013 2014 2015 2016 Statement of Cash Flows 7 Net Income 8 38.6 Depreciation & Amortization 9 Chg. in Accounts Receivable 1 Chg, in Pay. & Accrued Comp 2 Cash from Operations 3 Capital 4 Cash from Investing Activ 5 Dividends Paid itures (25.0 100.0 (75 hase) of stock 7 Debt Issuance (Pay Down 8 Cash from Financing Activ 9 Change in Cash 0 Mydeco Stock Price 7.92 3.30$5.2S $8.71 $10.89
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