Suppose a ​firm’s tax rate is 25%. 1. What effect would a $9.26 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 $9.26 million operating expense would be immediately​ expensed, increasing operating expenses by $9.26 million. This would lead to a reduction in taxes of 25%×$9.26 million=$2.32 million. B. A $9.26 million operating expense would be immediately​ expensed, increasing operating expenses by $9.26 million. This would lead to an increase in taxes of 25%×$9.26 million =$2.32 million. C. Earnings would decline by $9.26 million−$2.32 million=$6.94 million. The same effect would be seen on next​ year's earnings. D. Earnings would decline by $9.26 million−$2.32 million=$6.94 million. There would be no effect on next​ year's earnings. 2. What effect would a $11.75 million capital expense have on this​ year's earnings if the capital expenditure is depreciated at a rate of $2.35 million per year for five​ years? What effect would it have on next​ year's earnings?

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
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Suppose a ​firm’s tax rate is 25%.

1. What effect would a $9.26 million operating expense have on this​ year's earnings? What effect would it have on next​ year's earnings? (Select all the choices thatapply.)

A. A $9.26 million operating expense would be immediately​ expensed, increasing operating expenses by $9.26 million. This would lead to a reduction in taxes of 25%×$9.26 million=$2.32 million.

B. A $9.26 million operating expense would be immediately​ expensed, increasing operating expenses by $9.26 million. This would lead to an increase in taxes of 25%×$9.26 million =$2.32 million.

C. Earnings would decline by $9.26 million−$2.32 million=$6.94 million. The same effect would be seen on next​ year's earnings.

D. Earnings would decline by $9.26 million−$2.32 million=$6.94 million. There would be no effect on next​ year's earnings.

2. What effect would a $11.75 million capital expense have on this​ year's earnings if the capital expenditure is depreciated at a rate of $2.35 million per year for five​ years? What effect would it have on next​ year's earnings?

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