Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated...
Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. If Joe?s and Moe?s have the same sales, costs, tax rate, and enterprise value, then:
Group of answer choices
Joe's will have a lower profit margin.
Joe's will have a lower return on equity.
Moe's will have a higher net income.
Moe's and Joe?s will have the same EV multiple.
Moe's will have a lower EV multiple.
Homework Answers
The answer is
Moe's and Joe's will have the same EV multiple.
EV Multiple = Enterprice Value/EBITDA
Since enterprise value and all costs other than depreciation are same, EV multiple will be same
Moe will have a lower profit margin, lower return on Equity and lower income since it will charge depreciation expense against income which is zero for Joe
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