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Suppose a firm’s tax rate is 35%. a. What effect would a $7 million operating expense...

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Finance

Suppose a firm’s tax rate is 35%. a. What effect would a $7million operating expense have on this year’s earnings? What effectwould it have on next year’s earnings? b. What effect would a $7million capital expense have on this year’s earnings, if thecapital is depreciated straightline over 5 years? What effect wouldit have on next year’s earnings? (Below are all figures in thousanddollar. Round to nearest thousand. If number is negativ use - .Don't use , )

Year 1Year 2
a.One-time expense-7000
Effect on earnings
b.Capitalized expense-7000
Annual depreciation
Effect on earnings


Answer & Explanation Solved by verified expert
3.8 Ratings (653 Votes)
Q a i Effect on earnings in Year 1 One time expense Tax rate One time expense 7 Million 35 of 7 Million 7 Million 245 Million 455 Million ii Effect on    See Answer
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Transcribed Image Text

Suppose a firm’s tax rate is 35%. a. What effect would a $7million operating expense have on this year’s earnings? What effectwould it have on next year’s earnings? b. What effect would a $7million capital expense have on this year’s earnings, if thecapital is depreciated straightline over 5 years? What effect wouldit have on next year’s earnings? (Below are all figures in thousanddollar. Round to nearest thousand. If number is negativ use - .Don't use , )Year 1Year 2a.One-time expense-7000Effect on earningsb.Capitalized expense-7000Annual depreciationEffect on earnings

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