Wishart Ltd. owns and operates several landfills. The company is owned by a group of investors, most of who aren't in volved in the day-to-day operations. As a result, the financial statements are an important source of information for the shareholders. The company also has a large amount of long-term debt borrowed from several lenders. In late 2017, Wishart's management determined that it would need an infusion of additional capital to finance and expand two of the landfills and to upgrade the equipment at several others. However, the company has been struggling financially of late and manage ment is concerned that it might get a frosty response from prospective shareholders or creditors. In a recent executive meeting. the CFO proposed increasing the useful lives of several of the company's landfills. He argued that the initial estimates were conservative and that based on recent estimates of the amount of garbage that would be produced by Wishart's customers, the landfills would be able to operate 15 to 20 percent longer than estimated. The CFO said he would study the proposal further, but there was general agreement among the executive that this would be a good and reasonable strategy.
a. What effect would the change proposed by the CFO have on accounting measures such as revenue, expenses, net income, property, plant, and equipment, total assets, and shareholders' equity?
b. What would the impact be on ratios such as profit margin, return on assets, fixed asset turnover, and debt-to-equity ratio?
c. What would be the real economic impact of the proposed change?
d. How is it possible that a change in the life of the landfill by such a significant amount?
e. As a prospective lender to Wishart, how would your evaluation of the company be affected by the increase in the useful life of the landfills?