You would like to compare Firm A that has internally-developed their intangibles, and Firm B that has acquired their intangibles (assume the intangible is a finite-lived intangible with a three year life). Assume that Firm A develops the intangibles for three years, and Firm B buys the intangible in year three so it is ready to use on the first day of the fourth year. The two companies are otherwise identical, including their revenue streams, which are the same (i.e., the choice to internally-develop or acquire the patent does not impact current or future revenue). All expenditures (either to internally-develop or buy the intangible) are made with cash. Ignore any tax effects.

Question 1: In Year 2, Assets will be lower for Firm A (True or False)

Question 2: In Year 2, Expenses will be lower for Firm A (True or False)

Question 3: In Year 5, Revenues will be higher for Firm A (True or False)

Question 4: In Year 5, Expenses will be higher for Firm A (True or False)

Question 5: In Year 5, ROA (return on assets) will be higher for Firm A (True or False)

Question 6: Using the information from question 1, change the intangible from one with a finite life (as in the prior question) to an infinite life. Assume the intangible asset is not impaired during the time considered. Which of the following are true?

Group of answer choices

In Year 2, Expenses will differ between Firm A and B

In Year 5, Expenses will differ between Firm A and B

In Year 7, Net Profit Margin will differ between Firm A and B

In Year 7, ROA will differ between Firm A and B