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?
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
Section: Chapter Questions
Problem 1PS
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Question
Adidas bought a
depreciated by
$36.4
million piece of equipment. It will be $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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