Reference no: EM131798984

Case -

Target Corporation operates as two reportable segments: Retail and Credit Card. The Retail Segment includes merchandising operations, including large-format general merchandise and food discount stores in the United States and a fully integrated online business. Target offers both everyday essentials and fashionable, differentiated merchandise at discounted prices. The Credit Card Segment offers credit to qualified guests through branded proprietary credit cards, the Target Visa and the Target Card.

Wal-Mart Stores, Inc., is engaged in the operations of retail stores located in all 50 states of the United States; has wholly owned subsidiaries in Argentina, Brazil, Canada, Japan, Puerto Rico, and the United Kingdom; majority-owned subsidiaries in Central America, Chile, and Mexico; and joint ventures in India and China. The company's merchandising operations serve its customers primarily through the operations of three segments: the Wal-Mart U.S. segment includes the company's mass merchant concept in the United States operating under the "Walmart" brand, as well as walmart.com; the International segment consists of the company's operations outside of the 50 United States; the Sam's Club segment includes the warehouse membership clubs in the United States, as well as samsclub.com. Information taken from both firms' 2009 annual reports to shareholders follows. (Excel document, sheet 1) Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line depreciation method over estimated useful lives. Accelerated depreciation methods are generally used for income tax purposes. Estimated useful lives by major asset category are as follows: (Excel document, sheet 1).(Excel document, sheet 2) Depreciation and amortization for financial statement purposes are provided on the straight-line method over the estimated useful lives of the various assets. For income tax purposes, accelerated methods are used with recognition of deferred income taxes for the resulting temporary differences. Estimated useful lives for financial statement purposes are as follows: (Excel document, sheet 2)

Required:

Assume a 35% tax rate.

1. Estimate the average useful life of each firm's long-lived assets.

2. Calculate a revised estimate of Wal-Mart's 2009 depreciation expense using the estimated average useful life of Target's assets. Use this amount to recalculate Wal-Mart's income before taxes and net income.

3. Calculate a revised estimate of Target's 2009 depreciation expense using the estimated average useful life of Wal-Mart's assets. Use this amount to recalculate Target's 2009 income before taxes and net income.

4. Why might a financial analyst want to make adjustments in requirements 2 and 3?

5. What factors will affect the reliability and accuracy of the adjustments performed in requirements 2 and 3?

Attachment:- Case Information.rar