The Use Of R & D Expenditure

7. Note 9, on page 216, states that Harnischfeger decreased R&D expense in 1984 relative to the previous two years. Do you think this change was motivated by business considerations or accounting considerations? How did this change affect the company’s reported profits in 1984?

7. Note 9, on page 216, states that Harnischfeger decreased R&D expense in 1984 relative to the previous two years.  Do you think this change was motivated by business considerations or accounting considerations?  How did this change affect the company’s reported profits in 1984?

This decision may be the result of a conservative policy pursued by a firm. Restriction may be imposed on divisional heads on the total amount that they can commit on new projects.Another internal restriction for capital budgeting decision may be imposed by a firm based on the need to generate a minimum rate of return. Under this criterion only projects capable of generating the management’s expectation on the rate of return will be cleared.

Bigliardi, B. (2013). The effect of innovation on financial performance: A research study involving SMEs. Innovation: Management Policy & Practice, 15(2): 245-256.

Note 9 indicates that Harnischfeger decreased its R&D expense considerably in 1984 relative to the previous two years. Do you think this change was motivated by business considerations or accounting considerations? How did this change affect the company’s reported profits in 1984?

Estimate the effect of capitalizing software costs on Microsoft’s fiscal 1997, 1998, and 1999 income statements and balance sheets. Assume that 1) 60% of Microsoft’s research and development expenses were incurred after technological feasibility was established, 2) the average product life was two years, 3) the company had always capitalized these costs; and 4) the company begins amortization capitalized software costs at the beginning of the following fiscal year.

This aggressive spending minimizes the company’s cash on hand and indicates that while AMT is generating cash, their cash outflows are greater than their cash inflows. Mr. Haskin’s belief for the future growth potential of AMT is indicative of the fact that spending of R&D was necessary. But it may be that the excessive spending is why AMT reports negative earnings (shown below) from -9.8% in 83’ to -43.8% in 85’, resulting in inefficient use of its cash.

Recently, however, competition has become stiffer and such large biotechnology firms as Genentech, Amgen, and even Bristol-Myers Squibb have begun to recognize the opportunities in SIVMED’s research lines. Because of this increasing competition, SIVMED’s founders and board of directors have concluded that the firm must apply state-of-the-art techniques in its managerial processes as well as in its technological processes. As a first step, the board directed the financial vice president, Gary Hayes, to develop an estimate for firm’s cost of capital and to use this number in capital budgeting decisions. Haves, in turn, directed SIVMED’s treasurer, Julie Owens, to have cost of capital estimate on his desk in one week. Owens has an accounting background, and her primary task since taking over as treasurer has been to deal with the banks. Thus, she is somewhat apprehensive about this new assignment, especially since one of the board members is a well-known Northwestern University finance professor.

(2008) and Moser (2010) have been conducted in order to determine the effects of patents on the incentive to innovate. It has been argued that the patent system was an approach for some inventors to benefit monetarily from their inventions, but some inventors decided not to patent their inventions. Boldrin et al. note that the most prominent and effective innovations were from individuals that did not use the patent system (p.17). They conducted a natural experiment in order to examine the effects of the patent system with the steam engine in Cornwall, England during the time period 1772 and 1852. Their natural experiment provides stronger evidence than a descriptive study since it explores empirical evidence. Also, a natural experiment includes a comparison that allows the researchers to have a comparison of a time period when a patent was in place and when it was not. Boldrin et al. find that the duty, or the measure of how much work is delivered by a fixed amount of fuel from a steam engine, doubled in 1814 to 1852 versus 1772 to 1813 (p. 14-5). The empirical study demonstrates that the patent system had negative effects and it was only when Watt and Boulton’s patent expired that the steam engine was the most

When considering the proposed advertising program and technology upgrades, we have to ensure that the project will likely add value to the company, so we need to consider the return on investment versus the cost of capital. If the return on investment, measured by the net present value and internal rate of return, exceeds the cost of capital, the investment should be taken.

An intangible asset is an identifiable, non-monetary asset that has no physical presence. IAS 38 states that an intangible asset should be recognized initially at cost if some criteria are met such as the following:

18. Companies that expense R&D costs to the income statement rather than capitalize them on the balance sheet would have:

Bessant and Tidd (2007) are of the opinion that innovation is the translation of conceptualised ideas into commercially profitable

3) Chiesa, V., Coughlan, P. and Voss, C., (1996). Development of technical innovation audit. Journal of Product Innovation Management, 13 (2), 105

In this assignment, I will discuss and analyze the general importance of R&D in an organization and then specifically analyze my R&D strategy for your company up through the first six rounds. I will also evaluate what was my initial strategy for R&D? Did that strategy work well? What did I change regarding R&D as the rounds progressed, and why? What did I base your R&D decisions on?