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Suppose a firm's tax rate is 35%.

a. What effect would a $10.08 million operating expense have on this year's earnings? What effect would it have on next year's earnings?

b. What effect would a $7.95 million capital expense have on this year's earnings if the capital is depreciated at a rate of $1.59 million per year for five years? What effect would it have on next year's earnings?

a. What effect would a $10.08 million operating expense have on this year's earnings?Earnings would increase (decline) by

$ million. (Round to two decimal places, and use a negative number for a decline.)

What effect would it have on next year's earnings? (Select the best choice below.)

A.Next year's earnings will be affected by a decline of $3.53 million.

B.Next year's earnings will be affected by an increase of $3.53 million.

C. There would be no effect on next year's earnings.

D. Next year's earnings will be affected by the same amount.

b. What effect would a $7.95 million capital expense have on this year's earnings if the capital is depreciated at a rate of $1.59 million per year for five years? What effect would it have on next year's earnings? Earnings would be higher (lower) each year by

$ million. (Round to two decimal places, and use a negative number for a decline.)

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