Depreciation in Tax and Stockholder Reporting
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For 2007, Rico Metals reported $9000 of sales, $6000 of operating costs other than depreciation and $1500 of depreciation. The company had no amortization charges, it had issued $4000 of bonds that carry a 7% interest rate and its federal-plus-state income tax rate was 26%. 2008 data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1000. By how much will the depreciation change cause the net cash flow to change? Note that the company uses the same depreciation for tax and stockholder reporting. Be careful to record whether the change is positive or negative.
Sales $9000
Operating Costs 6000
Depreciation 1500
Bonds 4000
Interest Rate 7%
Federal Income Tax 26%
Depreciation Decreased 1000
$1000 * 26% = - $260.00
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Solution Summary
This solution shows step-by-step calculations in an excel file to determine the change in net cash flow using sales, operating costs, depreciation, and interest on bond values.
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