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Valuation homework

Valuation homework. Sophie Yu Section 2 Specialty Retail Amazon. Question 1. A ) B ). QUESTION 1. C ) Because the R&D was capitalized, and thus NEA was higher in the first five years and the RNEA is lower in the first five years D ) There are some capitalized R&D not fully amortized.

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Valuation homework

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  1. Valuationhomework SophieYu Section2 SpecialtyRetail Amazon

  2. Question1 • A) • B)

  3. QUESTION1 • C) • Because the R&D was capitalized, and thus NEA was higher in the first five years and the RNEA is lower in the first five years • D) • There are some capitalized R&D not fully amortized.

  4. QUESTION1 • E)

  5. QUESTION1 F)The REI does not grow at the same rate. In other words, it does not reach a steady status.

  6. QUESTION1 • G) • Every dollar of R&D expenditure will generate $1.6 of revenue over each of the subsequent five years and other expenses are 80% of the revenue,which means every dollar of R&D generate $0.32 income. However, a dollar reduction in R&D will reduce the revenue by $1. Thus the reduction in R&D expense will have more significant effects on enterprise income than the increase revenue and RNEA is higher.

  7. Question2 • A)

  8. QUESTION2

  9. QUESTION2 • B) • The projected EPAT for 2017 is different for the 5 year and 3 year depreciation methods. For the 5 year method, EPAT is $689, while for the 3 year method, the EPAT is $489. This difference arises from the fact that using different depreciations lives can shift income throughout the years. However, as the part (c) will show, the depreciation method not affect the overall value of the company.

  10. QUESTION2 • C)

  11. QUESTION2 D)Accountingpolicywouldnotaffectthevaluationofenterprise.Highprofitin2017doesnotleadtoahigherenterprisevalue.

  12. Questions?

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