Two companies, A and B, decide to acquire asset worth $15 million. Company A decides to purchase the asset whereas Company B will develop internally by its R&D unit with $15 million expenses in Year 1. The asset has a limited life of 3 years with no salvage value and hence will be amortized over 3 years using straight line. Create income statement, balance sheet and cash flow statement for both companies and calculate net profit margin and return on assets.
Company A (Purchased) | Company B (Internally Developed) | |||||||
Year 0 | Year 1 | Year 2 | Year 3 | Year 0 | Year 1 | Year 2 | Year 3 | |
Income statement | ||||||||
Revenue | 100 | 100 | 100 | 100 | 100 | 100 | ||
Cash exp exc. R&D | 50 | 50 | 50 | 50 | 50 | 50 | ||
R&D | ||||||||
Depreciation | ||||||||
Income before taxes | ||||||||
Taxes – 30% | ||||||||
Net income | ||||||||
Cash flow statement | ||||||||
Cash from operations: | ||||||||
Net income | ||||||||
Depreciation | ||||||||
Cash from investing | ||||||||
Change in cash | ||||||||
Balance sheet | ||||||||
Cash | 15 | 10 | ||||||
Gross PPE | 0 | 0 | ||||||
Depreciation | ||||||||
Net PPE | 0 | 0 | ||||||
Total assets | 15 | 10 | ||||||
Retained earnings | 0 | 0 | ||||||
Common stock | 15 | 10 | ||||||
Total equity | 15 | 10 | ||||||
Net profit margin | ||||||||
Return on assets |
Two companies, A and B, decide to acquire asset worth $15 million. Company A decides to...
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How to do question (b)?
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please correct red
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