An analyst is evaluating the financial statements of two companies in the same industry.

The companies have similar strategies with respect to the use of equipment in manufacturing their products. The following information is provided (amounts in millions):

1. Based on the information given, estimate the average remaining useful lives of the asset bases of Company A and Company B.

2. Suppose that, based on a physical inspection of the companies’ plants and other industry information, the analyst believes that the actual remaining useful lives of Company A’s and Company B’s assets are roughly equal at 10 years. Based only on the facts given, what might the analyst conclude about Company B’s reported net income?

Transcribed Image Text:

Net PPE Depreciation expense Company A $1,200 $120 Company B $750 $50