Acct Hw 4

Chapter 7: 7.22 (a. - d.)

a. The company assume the probabilities at any time investors exercise the options during the year is equal. If so, the value of option price per share was about the same as the average price of market price.

b. The company's stock price increased a lot from year 2 to year 3.

c.

d. The company is willing to sell shares of its stock to employees at a price much lower than the firm could obtain for shares sold on the market, because the company give the stock option to its employees as an incentive to encourage their employees stay in the company and work hard.

Chapter 8: Starbucks Case

Part III b.

An analyst should consider whether the fluctuations in this estimate for a given company over time can be explained by strategy or economic reality, ot do the useful life changes appear to be opportunistic.

If a company’s average total estimated useful life of depreciable property, plant, and equipment is not in line with competitors, an analyst should compare it with industry average. Then an analyst should analyze whether the company’s depreciation methods consistent with the expected economic lives of the assets and if the methods the company use changes frequently. If so, it might indicate low quality of the financial statements, operating difficulty or fraud, and the analyst should dig deeper about the issue.

Part III c.

Average age of depreciable assets = Accumulated Depreciation/ Depreciation Expense = 0.5*($4,244.2+ 3,808.1)/($580.6 – $4.5)= 6.9889 Years

Proportion of depreciable assets consumed = Accumulated Depreciation/ PP&E, gross =$4,244.2/$6,903.1=61.48%

Remaining Useful Life = PP&E, net/ Depreciation Expense =$ 2,658.9÷ ($580.6 – $4.5) = 4.6153

An analyst can track average age and proportion consumed through time and compare them to competitors’ numbers to ascertain whether assets are getting older on average and whether they are at a point where large capital expenditures are necessary...