please show work 15) Suppose a firm\'s tax rate is 35%, answer the following que
ID: 2796146 • Letter: P
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15) Suppose a firm's tax rate is 35%, answer the following questions. a) 12 points] What effect would a $10.2 million operating expense have on this year's earnings? b) 12 points] What effect ould have on next year's earnings c) 12 points] What effect would a S8.3 million capital expenditure have on this year's earnings if the capital expenditure is depreciated at a rate of $1.66 million per year for five years starting next year? d) 12 pointsl What effect would it have on next year's earnings?Explanation / Answer
a. The operating expense reduces the tax outgo. Since there is a tax of 35%, the tax gets reduced by 10,200,000*0.35 = 3,570,000. So the earnings will get reduced by 10,200,000 - 3,570,000 = 6,630,000
b. The operating expense this year would have no affect on next years earnings
c. The depreciation will also reduce the tax outgo. Since there is a tax of 35%, the tax gets reduced by 1,660,000*0.35 = 581,000 and the earnings will get reduced by 1,660,000 - 581,000 = $1,079,000
d. The earnings next year will also be reduced by the same extent since depreciation will happen each year
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