9. [Capitalization of research and development] Pfizer's 1999 annual report contains a financial summary (p 62) with 11 years of data including research and development expense.

a. Compute R&D expense as a % of sales for the five years end- ing in 1999, Discuss what this trend tells you about the im- portance of R&D to Pfizer's business Describe the effect of that trend on Pfizer's reported earnings.

b. Pfizer expenses all R&D. Assuming Pfizer had capitalized and amortized R&D costs, compule the following adjusted amounts for 1997-1999. (i) Operating income (ii) Return on assets (iii) Return on equity Your calculations should assume a tax rate of 35% and three- year amortization starting in the year of the R&D expendi- ture.

c. Compare the adjusted results in part b with those reported by Pfizer.

d. Discuss how the change in accounting method would affect the trend of Pfizer's (i) Asset turnover (ii) Cash from operations