Answer:
Net effect on income= $29,770 increase
Explanation:
Giving the following information:
Reduced costs= $36,400
Increase depreciation= $16,900
The reduction in costs will increase the EBIT but will decrease the tax shield. On the other hand, the increase in depreciation will increase the tax shield.
Reduction of costs= 36,400
Decrease in tax shield= (36,400*0.34)= (12,376)
Increase in tax shield= 16,900*0.34= 5,746
Net effect on income= $29,770 increase
