Exhibit 7.14 presents selected financial statement data for three chemical companies: New Market Corporation (recently formed from a merger of Ethyl Corporation and Afton Chemical Corporation), Monsanto Company, and Olin Corporation.
Required
a. Compute the average total depreciable life of assets in use for each firm during Year 4.
b. Compute the average age to date of depreciable assets in use for each firm at the end of Year 4.
c. Compute the amount of depreciation expense recognized for tax purposes for each firm for Year 4, using the amount of the deferred taxes liability related to depreciation timing differences.
d. Compute the amount of net income for Year 4 for each firm, assuming that depreciation expense for financial reporting equals the amount computed in part c for tax reporting.
e. Compute the amount each company would report for property, plant, and equipment (net) at the end of Year 4 if it had used accelerated (tax reporting) depreciation instead of straight-line depreciation.
f. What factors might explain the difference in average total life of New Market Corporation and Olin Corporation relative to Monsanto Company?
g. What factors might explain the older average age for depreciable assets of New Market Corporation and Olin Corporation relative to Monsanto Company?
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EXHIBIT 7.14 Three Chemical Companies Selected Financial Statement Data on Depreciable Assets (amounts in millions) (Problem 7.15) Olin NewMarket Corporation Company Corporation Monsanto Depreciable Assets, at cost: $4,611 4,604 $752 $1,796 1,826 Accumulated Depreciation: 2,331 2,517 267 328 Year End, Year 3 578 1,301 611 27 13 1,348 72 83 Depreciation Expense, Year 4 Deferred Tax Liability Relating to Depreciable Assets 267 256 Year End, Year 4 96 . 35% 35% 3596 Depreciation Method for Financial Reporting ............Straight-Line Straight-Line Straight-Line Depreciation Method for Tax Reporting Accelerated Accelerated Acelerated