Assume That Congress Recently Passed a Provision That Will Enable

question 39

Multiple Choice

Assume that Congress recently passed a provision that will enable Barton's Rare Books (BRB) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate.Prior to the new provision, BRB's net income after taxes was forecasted to be $4 million.Which of the following best describes the impact of the new provision on BRB's financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

• A) Net fixed assets on the balance sheet will decrease.
• B) The provision will reduce the company's free cash flow.
• C) The provision will increase the company's tax payments.
• D) Net fixed assets on the balance sheet will increase.
• E) The provision will increase the company's net income.

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Definitions:

Break-even Sales

The amount of revenue required to cover total costs, both fixed and variable, with no profit or loss.

Unit Selling Price

The price at which a single unit of a product is offered for sale to customers.

Unit Variable Costs

The cost associated with producing one additional unit of product, including materials, labor, and other variable expenses.

Break-even Point

The financial state in which total costs and total revenues are equal, meaning no net loss or gain is incurred by the business.