This is a variation of the preceding problem. In that problem, both companies had a single project. This problem assumes the companies have a new project every year. This is more like the position of real software development companies.

Assume that Alpha and Beta both began operations in 2010. Each year from 2010 through 2014, they spent $120 million on software projects. Alpha always expenses the costs in the year they are spent. Beta always amortizes the costs over three years, beginning in the year after it made the expenditures. After 2014, both companies stop spending on new software.

A. Fill out the following chart:

B. Which company would have higher income in:

a. 2010

b. 2015

c. 2017?

C. In 2014, which company would likely have a higher return on equity?

Transcribed Image Text:

Year Spending Alpha expense Beta expense 2010 $120 million 2011 $120 million 2012 $120 million 2013 $120 million 2014 $120 million 2015 0 2016 0 2017 0