Required: a. What is the percentage of capitalized costs at BMW and VW? b. BMW's net income in 2009 was 210 mil., while BMW's equity was 19,915 mil. How will BMW's net income, equity and ROE change if you assume that (ignore any effects on taxes): BMW capitalizes the same percentage of R&D outlays as VW? BMW expenses total R&D expenditure as incurred (instead of capitalizing and amortizing development)? BMW vs. Volkswagen in the crisis year 2009 BMW 2,448 1,361 1,087 1,226 Total R&D expenditure (cash) Expensed research costs Capitalized development costs Amortization of previously capitalized development costs This information is based on R&D disclosure in BMW's financial statements: 9 Cost of sales Cost of sales comprises: in euro million Manufacturing costs Research and development costs- Warranty expenditure - Cost of sales directly attributable to financial services Interest expense relating to financial services business Expense for risk provisions and write-downs for financial services business Other cost of sales Cost of sales adjusted as a result of the change in presentation of research and development costs Cost of sales include euro 14,281 million (2008: euro 13,997 million) relating to financial services business. Manufacturing costs do not contain any impairment losses on intangible assets and property, plant and equipment (2008: euro 3 million). Cost of sales is reduced by public- sector subsidies in the form of reduced taxes assets in euro million Research and development costs Amortisation New expenditure for capitalised development costs- Total research and development expenditure 2009 24,930 2,587 996 10,092 2,879 1,310 2,562 45,356 Volkswagen 5,790 3,843 1,947 1,586 2009 2008- and reduced consumption-based taxes amounting to euro 27 million (2008: euro 23 million). 2,587 -1,226 1,087 2,448 26,727 2,825 990 9,634 -2,666 -1,697 2,609 47,148 Total research and development expenditure comprising research costs, development costs not recognised as assets and capitalised development costs were as follows: 2008 2,825 -1,185 1,224 2,864 Q