Question

Which of the Last year Tata Technologies reported $10,500 of sales, $6,250 of operating costs other than depreciation, and $1,300 of depreciation. The company had no amortization charges, it had $5,000 of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. 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 Tata net income change as a result of the change in its depreciation

Answer 1

Answer:  -$487.50

Explanation:

Last year income = Sales - Operating Costs - Depreciation - Interest

= 10,500 - 6,250 - 1,300 - ( 5,000 * 6.5%)

= $2,625 - tax

= 2,625 - ( 2,625 * 35%)

= $1,706.25‬

This year income = Sales - Operating Costs - Depreciation - Interest

=  10,500 - 6,250 - (1,300 + 750) - ( 5,000 * 6.5%)

= $1,875

= 1,875 - ( 1,875 * 35%)

= $‭1,218.75‬

Difference = This year income - Last year

= ‭1,218.75‬ - 1,706.25‬

= -$487.50