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Homework Exercise

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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Homework Exercise

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  1. Homework Exercise

  2. Question #1: Accounting for R&D and Economic Profit Measures

  3. A. Expense R&D • Calculation of Enterprise Income, RNEA, and REI

  4. B. Capitalize R&D • Calculation of Enterprise Income, RNEA, and REI

  5. C. Compare RNEA and REI under the two accounting treatments Expense R&D Capitalize R&D

  6. D. Forecast RNEA and REI for 2020 • RNEA driven by difference in NEA

  7. E. Value the firm using both accounting treatments • Enterprise Value = 334.36

  8. F. Valuation at 2016 • Difficulties • Steady state has not yet been achieved • Still negative REI values

  9. G. Cut R&D Expenditures

  10. Question 2: Depreciation Methods

  11. A. EPAT and NEA

  12. C. Enterprise Value

  13. E. 2022 Calculations: 3 Year

  14. E. 2020 Calculations: 5 Year

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