Question
TT in 2010 had $11,500 of sales, $7,125 of operating, and $1,100 of depreciation. TT has $3,500 of bonds that carry a 5.75% interest rate
TT in 2010 had $11,500 of sales, $7,125 of operating, and $1,100 of depreciation. TT has $3,500 of bonds that carry a 5.75% interest rate with an income tax rate of 40%. Everything should remain the same in 2011 except for depreciation, which is expected to increase by $950.
a. Set up the table that shows how everything is derived all the way down to net income for 2010 and 2011. Also provide a column that shows the changes.
b. By how much will net after-tax income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes. (2.65)
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