1) What is Blockbuster's amortization timetable? Do you think it is appropriate? Blockbuster’s amortization timetable is 40 years. This is not the industry standard and should be 5-7 years. 2) What would be the impact on Blockbuster's 1988 earnings per share if 5 year amortization were applied to this goodwill? If the 5-year amortization were applied instead of the 40-year timetable, the company would have to recognize the goodwill in larger amounts, which would increase their tax liability. 3) What would have been the effect on earnings per share if Video Superstore purchases were not included in 1988 revenues? The earnings-per-share would be lower. 4) Over what period does BV depreciate its "base stock” videotapes? 36-month, straight-line amortization period. 5) What was the effect on earnings per share of the change in depreciation method for “hit” tapes (assume that hit tapes made up 25% of new tape purchases, and that the average hit tape was owned for half the year)? EPS = NI-Pref Div / Avg Oustanding Common Stock. So if the depreciation method changes from straight-line to accelerated. More depreciation expense is recognized up front and NI decreases. So the EPS ratio decreases. 6) What was the effect on earnings per share of these sales to franchisees? It raised EPS by $0.25 per share. 7) What was the effect on 1988 earnings per share, of the non-recurring items: area development fees and initial franchise fees? 8) What would BV's 1988 earnings per share be after all of the above adjustments? 9) Ignoring #3 above, what would BV's 1988 earnings per share be after the above adjustments? 10) What would BV's Price/Earnings ratio be, given all of the above adjustments (including #3)?
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