Calculate Hidden Widgets expected operating income

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Reference no: EM132827592

Question - A Start-up software firm, Hidden Code Co., budgets R&D expenditures of $120 (million) for the foreseeable future. Each dollar of R&D expenditure is expected to generate $2 dollars of revenue for 3 full years following the expenditure, then zero revenues thereafter.

Additional information: The company's current level of net operating assets is $90 million. There is no outstanding debt. Operating expenses (other than software R&D costs) are expected to be 75 percent of sales.

Required -

Calculate Hidden Widgets' expected operating income and RNOA for the next 3 years under the assumption that software R&D costs are expensed immediately.

Calculate RNOA for the next 3 years under the assumption that software costs are capitalized and amortized straight line over the 3 years.

Reference no: EM132827592

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