compared to cinnamon rsquo s operating margin in 2008 if it is deemed to have contro 605261

Cinnamon, Inc. is a diversified manufacturing company headquartered in the United States, and it complies with U.S. GAAP. In 2008, Cinnamon held a 19 percent passive stake in Cambridge Processing that was classified as available for sale. During the year, the value of this stake rose by $2 million. In December 2008, Cinnamon announced that it would be increasing its ownership to 50 percent effective 1 January 2009.

Peter Lubbock, an analyst following both Cinnamon and Cambridge, is curious how the increased stake will affect Cinnamon’s consolidated financial statements. He asks Cinnamon’s chief financial officer how the company will account for the stake, and is told that the decision has not yet been made. Lubbock decides to use his existing forecasts for both companies’ financial statements to compare various alternative outcomes.

Lubbock gathers abbreviated financial statement data for Cinnamon (Exhibit 15-7) and Cambridge (Exhibit 15-8) for this purpose.

EXHIBIT 15-7 Selected Financial Statement Estimates for Cinnamon, Inc. ($ millions)

Year ending 31 December	2008	2009
Revenue	1,400	1,575
operating income	126	142
Net income	62	69
Total assets	1,170	1,317
Shareholders” equity	616	685

EXHIBIT 15-8 Selected Financial Statement Estimates for Cambridge Processing ($ millions)

Year ending 31 December	2008	2009
Revenue	1,000	1,100
operating income	80	88
Net income	40	44
Dividend paid	20	22
Total assets	800	836
Shareholders” equity	440	462

Compared to Cinnamon’s operating margin in 2008, if it is deemed to have control of Cambridge, its operating margin in 2009 will most likely be

a. lower.

b. higher.

c. the same.