This example is comparing Software development under two scenarios, expensing or capitalizing. My concern is with question 1B. When calculating the impact on the ratios if the company had expensed, CFAI recognizes that the $6000 expense is originally treated as CFI, and if expensed would be treated as CFO. This would reduce CFO from $15,007 to $9007. However, CFAI doesn’t add back the $2000 in amortization of capitalized software which would not be present if the company expensed. This would increase the CFO to $11,007 from $9007. This adjustment is made in question 1A calculating the P/E ratio, however not in 1B when calculating the P/CFO. Thoughts? Matt
"This would increase the CFO to $11,007 from $9007. " i did not read the question but it seems to me that you are forgeting hat amortization is non cash so no effect on CFO or anything cash… DIferent storry with he original expense which is cash
ahhh the old NCC trick got me. Thank you sir!
anytime buddy, now someone hellp me dry up my keyyboard loooooooool