For 2005, Miami Metals reported $9,000 of sales, $6,000 of operating costs other

Question

For 2005, Miami Metals reported $9,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. The company had no amoritization charges, it has $4,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate was 40%. 2006 data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1,000. By how much will the net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting.

a. -$800
b. -$700
c. -$600
d. -$500
e. -$400

Explanation / Answer

c. -$600

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