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1) What is Blockbuster's amortization timetable? Do you think it is appropriate?
The Blockbuster’s amortization timetable is 40 years. I think this is not appropriate because it 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?
This will actually make the company to experience large amount of goodwill and thus their tax liability will increase.
3) What would have been the effect on earnings per share if Video Superstore purchases were not included in 1988 revenues?
If the video purchases were not included in 1988 then the earnings-per-share would be lower.
4) Over what period does BV depreciate its "base stock” videotapes?
The period it depreciate its base stock is 36-month, which is on a 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)?
Because of the change method of the depreciation from a straight line to the accelerated, therefore, there is recognition of a more depreciation expense up front and there is no decrease that is experienced. There is also a decrease in the ESP ratio.
6) What was the effect on earnings per share of these sales to franchisees?
The effect was that the EPS will be higher due to the sale to franchisees.
136.9-2.415=134.485 so ESP for franchisees is 33.5 / 134. 485 = \$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?
The effect was that EPS was raised and this made an increase in the owned and increased video stores.
8) What would BV's 1988 earnings per share be after all of the above adjustments?
The BVs EPS after the adjustments would be higher than before adjustments.
33.5 / 136.9= 0.24 per share + \$0.34 per share

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