1. ABC Corporation recently reported $12,500 of sales, $7,250 of operating costs other than depreciation,...
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1. ABC Corporation recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 in bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%.
(a) What is the companys EBIT
(b)What is the companys net income?
2. Last year, Smith Industries 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 outstanding that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This years data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $750. 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.
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