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Homework Exercise. Question #1:. Accounting for R&D and Economic Profit Measures. A. Expense R&D. Calculation of Enterprise Income, RNEA, and REI. B . Capitalize R&D. Calculation of Enterprise Income, RNEA, and REI. C. Compare RNEA and REI under the two accounting treatments. Expense R&D.
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Question #1: Accounting for R&D and Economic Profit Measures
A. Expense R&D • Calculation of Enterprise Income, RNEA, and REI
B. Capitalize R&D • Calculation of Enterprise Income, RNEA, and REI
C. Compare RNEA and REI under the two accounting treatments Expense R&D Capitalize R&D
D. Forecast RNEA and REI for 2020 • RNEA driven by difference in NEA
E. Value the firm using both accounting treatments • Enterprise Value = 334.36
F. Valuation at 2016 • Difficulties • Steady state has not yet been achieved • Still negative REI values
Question 2: Depreciation Methods