Companies X and Z have the same beginning-of-the-year book value of equity and the same tax rate.
Question:
Companies X and Z have the same beginning-of-the-year book value of equity and the same tax rate. Th e companies have identical transactions throughout the year and report all transactions similarly except for one. Both companies acquire a £300,000 printer with a three-year useful life and a salvage value of £0 on January 1 of the new year. Company X capitalizes the printer and depreciates it on a straight-line basis, and Company Z expenses the printer. Th e following year-end information is gathered for Company X.
Based on the information given, Company Z’s return on equity using year-end equity will be closest to:
A . 5.4%.
B . 6.1%.
C . 7.5%.
Step by Step Answer:
International Financial Statement Analysis Workbook
ISBN: 9781119628095
4th Edition
Authors: Thomas R. Robinson, Elaine Henry, Wendy L. Pirie