Adidas bought a $36.4 million piece of equipment. It will be depreciated by $6.07 million per year over 6 ​years, starting this year​ (i.e., the same year they purchased​ it). Suppose​ Adidas' tax rate is 35%. a. What impact will the cost of the purchase have on earnings for each of the next 6 ​years?   b. What impact will the cost of the purchase have on the​ firm's cash flow for the next 6 ​years?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Adidas bought a
$36.4
million piece of equipment. It will be depreciated by
$6.07
million per year over
6
​years, starting this year​ (i.e., the same year they purchased​ it). Suppose​ Adidas' tax rate is
35%.
a. What impact will the cost of the purchase have on earnings for each of the next
6
​years?  
b. What impact will the cost of the purchase have on the​ firm's cash flow for the next
6
​years?
 
 
 

Question content area bottom

Part 1
a. The impact on earnings will be
​$enter your response here
million each year for
6
years.  ​(Round to two decimal places. Use a negative sign for a decrease in​ value.)
 
b1. The impact on the​ firm's cash flow in Year 1 is
​$enter your response here
million. ​(Round to two decimal places. Use a negative sign for a decrease in​ value.)
 
b2. The impact on the​ firm's cash flow in years 2 through
6
is
​$enter your response here
million.  ​(Round to two decimal places. Use a negative sign for a decrease in​ value.)
Expert Solution
Step 1: Define=depreciation

Depreciation is the decrease in value of equipment with time and use of equipment and depreciation is shown as expenses in income.

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