Question

Last year, Stewart-Stern Inc. reported $11,250 of sales, $4,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds outstanding that carry a 6.50% interest rate, and its federal-plus-state income tax rate was 35.00%. During last year, the firm had expenditures on fixed assets and net operating working capital that totaled $2,000. These expenditures were necessary for it to sustain operations and generate future sales and cash flows. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1,225. By how much will the depreciation change cause (1) the firm's net income and (2) its free cash flow to change? Note that the company uses the same depreciation for tax and stockholder reporting purposes. Do not round the intermediate calculations.

please show work

Answer #1

Calculate the change in the net income and free cash flow as follows:

Formulas:

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What was its free cash flow?...

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expected to remain unchanged except for one item, depreciation,
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Rocket Medical recently reported $12,500 of sales, $6,500 of
operating costs other than depreciation, and $1,250 of
depreciation. The company had $3,500 of bonds that carry a 7.5%
interest rate, and its federal-plus-state income tax rate was 25%.
During the year, the firm had expenditures on fixed assets of
$2,500 and net operating working capital that totaled $1,550. These
expenditures were necessary for it to sustain operations and
generate future sales and cash flows.
What was its free cash flow?...

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$5,000 of bonds outstanding that carry a 6.5% interest rate, and
its federal-plus-state income tax rate was 35%. This year’s data
are expected to remain unchanged except for one item, depreciation,
which is expected to increase by $750. By how much will net
after-tax income change as a result of the change...

Last year Tata Technologies reported $10,500 of sales,
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federal-plus-state income tax rate was 35%. This year's data are
expected to remain unchanged except for one item, depreciation,
which is expected to increase by $750. By how much will Tata’s net
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