purchased additional equipment for $11.7 million at the end of 2016, and this equipment was depreciated by $3.9 million per year in 2017, 2018, and 2019. Given Mydeco‘s tax rate of 35%, what impact would this additional purchase have had on Mydecco’s net income in years 2016-2019? Assume that the equipment is paid for out of cash and that Mydeco earns no interest on its cash balances. In the table, calculate the new net income below. **round to one decimal place**
purchased additional equipment for $11.7 million at the end of 2016, and this equipment was depreciated by $3.9 million per year in 2017, 2018, and 2019. Given Mydeco‘s tax rate of 35%, what impact would this additional purchase have had on Mydecco’s net income in years 2016-2019? Assume that the equipment is paid for out of cash and that Mydeco earns no interest on its cash balances. In the table, calculate the new net income below. **round to one decimal place**
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
Related questions
Question
The data table shows financial statement data and stock price data for Mydeco Corp. Suppose Mydeco had purchased additional equipment for $11.7 million at the end of 2016, and this equipment was depreciated by $3.9 million per year in 2017, 2018, and 2019. Given Mydeco‘s tax rate of 35%, what impact would this additional purchase have had on Mydecco’s net income in years 2016-2019? Assume that the equipment is paid for out of cash and that Mydeco earns no interest on its cash balances.
In the table, calculate the new net income below.
**round to one decimal place**
Transcribed Image Text:2015-2019 Financial Statement Data and Stock Price Data for Mydeco Corp.
(All data as of fiscal year end; in $ millions)
2015
Income Statement
2016
2017
2018
2019
Revenue
405.6
359.1
420.7
506.6
605.9
(207.6)
(293.5)
(243.8)
262.8
Cost of Goods Sold
(183.4)
(171.5)
Gross Profit
222.2
187.6
213.1
312.4
(67.2)
(58.3)
(26.3)
(84.2)
(58.0)
(34.5)
(102.1)
(67.8)
(38.8)
(124.3)
(76.5)
(38.3)
Sales and Marketing
(68.1)
(61.7)
(28.7)
63.7
Administration
Depreciation & Amortization
EBIT
35.8
36.4
54.1
73.3
Interest Income (Expense)
(33.2)
(33.7)
(32.6)
(38.4)
(38.3)
Pretax Income
30.5
2.1
3.8
15.7
35.0
Income Tax
(10.7)
(0.7)
(1.3)
(5.5)
(12.3)
Net Income
19.8
1.4
2.5
10.2
22.7
56.3
56.3
56.3
Shares Outstanding (millions)
Earnings per Share
Balance Sheet
56.3
56.3
$0.35
$0.02
$0.04
$0. 18
$0.40
2015
2016
2017
2018
2019
Assets
Cash
50.8
66.3
78.8
69.0
75.3
Accounts Receivable
88.8
70.5
70.1
76.7
84.8
Inventory
35.3
31.1
29.2
32.3
37.2
Total Current Assets
174.9
167.9
178.1
178.0
197.3
242.1
310.8
344.1
342.7
Net Property, Plant & Equipment
Goodwill & Intangibles
248.4
366.2
366.2
366.2
366.2
366.2
Total Assets
789.5
776.2
855.1
888.3
906.2
Liabilities & Stockholders' Equity
Accounts Payable
Accrued Compensation
19.8
16.5
22.7
26.9
30.7
6.1
5.8
6.1
8.4
10.1
Total Current Liabilities
25.9
22.3
28.8
35.3
40.8
Long-Term Debt
504.1
504.1
579.5
605.8
605.8
Total Liabilities
530.0
526.4
608.3
641.1
646.6
249.8
246.8
247.2
259.6
Stockholders' Equity
Total Liabilities & Stockholders'
Equity
Statement of Cash Flows
259.5
789.5
776.2
855.1
888.3
906.2
2015
2016
2017
2018
2019
Net Income
19.8
1.4
2.5
10.2
22.7
28.7
Depreciation & Amortization
Change in Accounts Receivable
Change in Inventory
Change in Pay. & Accrued Comp.
Cash from Operations
Capital Expenditures
Cash from Investing Activ.
26.3
34.5
38.8
38.3
3.9
18.3
0.4
(6.6)
(3.1)
6.5
(8.1)
(4.9)
5.5
4.2
(2.9)
1.8
1.9
(3.6)
6.5
51.3
46.6
45.8
45.8
53.5
(23.7)
(23.7)
(5.5)
(25.6)
(25.6)
(5.5)
(103.2)
(103.2)
(5.5)
(76.4)
(76.4)
(5.5)
(41.2)
(41.2)
(6.0)
Dividends Paid
Sale (or Purchase) of Stock
Debt Issuance (Pay Down)
Cash from Financing Activ.
Change in Cash
Mydeco Stock Price
75.4
26.3
(5.5)
(5.5)
69.9
20.8
(6.0)
(9.8)
$8.38
22.1
15.5
12.5
6.3
$7.09
$3.14
$5.42
$12.68
Transcribed Image Text:Calculate the new net income below: (Round to one decimal place.)
(millions) Year
2016
2017
2018
2019
Net Income
$4
Additional Depreciation
24
24
Tax Savings
24
New Net Income
%24
%24
%%24
%24
%24
%24
%24
%24
%24
Expert Solution
Step 1
Depreciation is the reduction in the value of fixed assets due to normal wear and tear, passage of time, etc.
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