Oromocto Inc. (Oromocto) is a large mining company. In 2011, it wrote down $20,000,000 in costs that it incurred finding and developing certain mining properties. If Oromocto had not written down these costs, $4,000,000 more in depreciation would have been expensed in each year from 2011 through 2015. The summarized financial statement information for the years 2011 through 2014 are given:

Additional information:
* Oromocto has no preferred shares outstanding.
* The depreciation expense doesn’t include the depreciation of the written-down assets and the writedown isn’t reflected in the presented information.
* Oromocto’s tax rate is 15 percent.
* Assume that the writedown and any additional depreciation expense don’t affect Oromocto’s tax. expense.

Required

a. Determine Oromocto’s net income for 2011 through 2014, assuming that the $20,000,000 writedown (i) occurred and (ii) didn’t occur. For (ii), depreciation of the assets must be expensed each year.

b. Calculate Oromocto’s profit margin, return on assets, and return on equity, assuming the writedown (i) occurred and (ii) didn’t occur.

c. Should the writedown be considered permanent or transitory? Explain.

d. As an equity investor in Oromocto, how would your evaluation of the company be affected by whether the writedown occurred versus if the assets were depreciated over their remaining life? In responding you should consider permanent versus transitory earnings.

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Oromocto Inc. Summarized Financial Statement Information (000s) 2010 2011 2012 2013 2014 Revenue Operating expenses Depreciation expense Interest expense $140,300 $128,800 $142,600 $151,800 71,553 66,332 74,295 80,150 32,200 33,120 34,040 35,880 5,520 5,520 5,520 5,520 Income tax expense 4,654 3,574 4,312 4,537 Net income $ 26,373 $ 20,254 $ 24,433 $ 25,713 Total assets $170,200 $197,922 $228,106 $247,695 $270,395 Total shareholders' equity $115,000 $141,373 $161,627 $186,060 $211,773