a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on next year's earnings? (Select all the choices that apply.) A. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05 million. This would lead to a reduction in taxes of 25% x $9.05 million = $2.26 million. B. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05 million. This would lead to an increase in taxes of 25% x $9.05 million = $2.26 million. C. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. The same effect would be seen on next year's earnings. D. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. There would be no effect on next year's earnings.
a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on next year's earnings? (Select all the choices that apply.) A. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05 million. This would lead to a reduction in taxes of 25% x $9.05 million = $2.26 million. B. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05 million. This would lead to an increase in taxes of 25% x $9.05 million = $2.26 million. C. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. The same effect would be seen on next year's earnings. D. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. There would be no effect on next year's earnings.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter6: Accounting For Financial Management
Section: Chapter Questions
Problem 12P
Related questions
Question
100%
![Suppose a firm's tax rate is 25%.
a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on
next year's earnings?
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital expenditure is
depreciated at a rate of $2.04 million per year for five years? What effect would it have on next year's earnings?
a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on
next year's earnings? (Select all the choices that apply.)
A. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05
million. This would lead to a reduction in taxes of 25% x $9.05 million = $2.26 million.
B. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05
million. This would lead to an increase in taxes of 25% × $9.05 million = $2.26 million.
C. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. The same effect would be seen on
next year's earnings.
D. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. There would be no effect on next
year's earnings.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe68fb1ae-fc32-4d84-ad25-16ca36cebf4d%2Ff63a74f1-7ae5-48c4-83d3-ab8cc36ad982%2Fdwncddk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose a firm's tax rate is 25%.
a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on
next year's earnings?
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital expenditure is
depreciated at a rate of $2.04 million per year for five years? What effect would it have on next year's earnings?
a. What effect would a $9.05 million operating expense have on this year's earnings? What effect would it have on
next year's earnings? (Select all the choices that apply.)
A. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05
million. This would lead to a reduction in taxes of 25% x $9.05 million = $2.26 million.
B. A $9.05 million operating expense would be immediately expensed, increasing operating expenses by $9.05
million. This would lead to an increase in taxes of 25% × $9.05 million = $2.26 million.
C. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. The same effect would be seen on
next year's earnings.
D. Earnings would decline by $9.05 million - $2.26 million = $6.79 million. There would be no effect on next
year's earnings.
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Follow-up Question
![b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate
of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices
that apply.)
A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as a capital expense.
B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as an operating expense.
C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.](https://content.bartleby.com/qna-images/question/e68fb1ae-fc32-4d84-ad25-16ca36cebf4d/f494b2d1-25eb-4764-8baa-213c644acf5d/5jlhhv_thumbnail.jpeg)
Transcribed Image Text:b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate
of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices
that apply.)
A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as a capital expense.
B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as an operating expense.
C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
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