Guided Walkthroughs
The $10 Depreciation Walk, Extended — Step 2 of 10: Income statement — what happens with $10 more depreciation at a 25% tax rate?
Model answer
Depreciation is an operating expense, so pre-tax income falls by the full $10. Tax expense falls by 10 × 25% = $2.50 (the tax shield). Net income falls by 10 × (1 − 0.25) = $7.50. That's the whole…
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