The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all
Else equal:
A) Joe's will have a lower proﬁt margin.
B) Joe's will have a lower return on equity.
C) Moe's will have a higher net income.
D) Moe's will have a lower proﬁt margin.
E) Moe's will have a higher return on assets.

Question

Quizplus · Accepted Answer

Since Moe's has just purchased all new equipment which will be depreciated over eight years, they will have higher expenses initially leading to lower profits and hence lower profit margin. On the other hand, Joe's has fully depreciated equipment which means they will have lower expenses and higher profits leading to higher profit margin.

The Only Difference Between Joe's and Moe's Is That Joe's