Below is the reported R&D expense of a pharmaceutical firm concentrated on drug development and sale. Currently the firm fully expenses its R&D costs. Year 2010 2009 2008 2007 R&D expense (in billions of USD) 5.3 billion 4.4 billion 3.2 billion 3.9 billiorn Additional information for 2010 is as follows (all numbers in millions of USD): Revenue: 44,1 billion EBIT: 8,1 billion Total Equity: 23.2 billion Total Debt: 9.2 billion . Typical effective lifetime of R&D-related assets in the industry: 4 years Applicable tax rate 30% a) Assuming that IFRS allows capitalizing all development costs, and research costs are approximately 40% of the total R&D costs, what R&D-related assets could the firm report in 2010? State the net book value of R&D related assets. Assume that development assets are purchased at the end of the year b) What are the R&D capitalization effects on the firm's profitability as measured by EBIT margin? Calculate EBIT margin before and after capitalization. c) If the firm decides to use the capitalization option, what will be its effect on financial leverage