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Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai

Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai. Question 1. R&D expenditures Expect to generate $1.6 of revenue over each of the subsequent 5 years Expenses other than R&D=0.8*Sales. Question 1 (a)&(b). Under GAAP, expensing R&D.

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Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai

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  1. Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai

  2. Question 1 R&D expenditures Expect to generate $1.6 of revenue over each of the subsequent 5 years Expenses other than R&D=0.8*Sales

  3. Question 1 (a)&(b) Under GAAP, expensing R&D

  4. Question 1 (a)&(b) Capitalizing R&D

  5. Question 1 (c) • EPAT is different • EPAT is lower for expensing. R&D expensed instead of showing as assets • NEA is different • NEA is higher for capitalizing • REI same reason

  6. Question 1 (d)

  7. Question 1 (d) Under expense option, there is no expense in 2020. Then the income is higher Under capitalization option, there is still amortization cost in 2020. Therefore, the income is lower Since the NEA base is smaller in expense option, the RNEA and REI would be higher

  8. Question 1 (e) Valuation the same Accounting methods do not impact values

  9. Question 1 (e) Valuation the same Accounting method does not impact values

  10. Question 1 (f) If only forecast up to 2016, the firm is not in steady state EPAT and NEA is still converging to the steady state value Terminal value cannot be estimated accurately since sales are still increasing The valuation would not result in the same figure for two methods

  11. Question 1 (g)

  12. Question 1 (g) Sales are declining at a lower rate than R&D expenditure R&D expenses are smaller EPAT is actually increasing so RNEA will increase

  13. Question 2 (a) sss

  14. Question 2 (b) Under 5 year depreciation method, the firm is more profitable in 2017 Depreciation less in each year so EPAT is higher

  15. Question 2 (c) Value the same under both methods

  16. Question 2 (d) The firm would have a higher EPAT figure in 2017 under 5 year depreciation method However, the market is reasonably efficient. Informed investors will know the intrinsic value of the firm would not change The stock price will reflect the true value of the firm so the market would not give a high value Even if the market is not efficient, a higher value is given at IPO time. The value will decline later to reflect the intrinsic value of the firm later.

  17. Question 2 (e) After 2021, EPAT is stable at $350 million under both methods There would be no difference in choosing depreciation methods since they both provide the same income figure. The intrinsic value is still the same

  18. Thanks!Q&A

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