$3,192millionwillbecomethecurrentyear’sR&D,$3,135
millionwillbecometheR&Dforyear−1and 80 percentofit
will be unamortized, and so on.
3 Ifthereturnoncapitalearnedbyafirmiswellbelowthe
cost of capital, the adjustment could result in a higher return.
4 Asanexample,JamieKiggen,anequityresearchanalystat
Donaldson,LufkinandJenrette,valuedanAmazoncustomer
at$2,400inanequityresearchreportin1999.Thisvaluewas
basedontheassumptionthatthecustomerwouldcontinueto
buyfromAmazon.comandanexpectedprofitmarginfrom
such sales.
5 Thecomputationyields18.67,butweusedonlytheinteger
component of 18 years (2,405/18 = 133.61).
6 Theleaselifeiscomputedbyaddingtheestimatedannuity
life of 18 years for the lump sum to the initial five years.
7 IBES estimates.
8 Microsoft preserved its credibility with analystsby also
lettingthemknowwhentheirestimatesweretoolow.Firms
thatareconsistentlypessimisticintheiranalystpresentations
losetheircredibilityand consequentlytheireffectivenessin
managing earnings.
9 Firmsthat bought Windows 95 in 1995 also bought the
righttoupgrades andsupportin 1996 and1997.Microsoft
could have shown these as revenues in 1995.