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9 July, 03:42

Last year Almazan Software reported $10.500 million of sales, $6.250 million of operating costs other than depreciation, and $1.300 million of depreciation. The company had $5.000 million of bonds 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 $0.670 million. By how much will net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes. (Round your final answer to 3 decimal places.)

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  1. 9 July, 06:22
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    Answer: - ($0.5025) million

    Explanation:

    As depreciation is expected to increase this year by $0.670 million.

    Therefore,

    Expenses will increase and will result in decrease in income before tax by $0.670 million.

    Additional tax saving on increase in depreciation = $0.67 * 25%

    = $0.1675 million

    Hence,

    Total change in net income = - ($0.67) + $0.1675

    = - ($0.5025) million
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