Company A purchases a machine for 300,000 EUR, a useful life of 6 years, and an

estimated salvage (residual) value of 50,000 EUR after those 6 years.

a. If that machines depreciates following a linear pattern,

1.1- What’s book value of that machine after 4 years?
initial value−residual value 300,000−50,000 EUR
Dep .term= = =41,667
useful lifetime 6 year
Value 4 =300,000−4∗41,667=133,333 EUR

b. If that machines depreciates following an inverse exponential pattern,

1.2- What’s book value of that machine after 4 years?

Dep .ratio=1−
√
t residual value
initial value
=1−
√6 50,000

300,000
=0.258=25.8 %

Value 4 =300,000∗( 1−0.258 )4 =90,856 EUR

1.3- And what’s book value of that machine after 6 years?

What a silly question!

Company B has released the following information from its income statement for year 2023:

- Sales Revenues: 2,000,000 EUR

- Cost of sales (COGS): 500,000 EUR
- Salaries, rent and other operating expenses: 1,000,000 EUR
- Interests received from investments: 100,000 EUR
- Interests paid on borrowings: 200,000 EUR

Remember
Sales Revenues
- COGS
= Gross Profit
- Operating costs
= Operating Profit
± financial operations
= Profit before taxes
- Taxes
=Profit after taxes

2.1- What is the Gross Profit Margin?

Gross Profit=Rev−COGS=2,000,000−500,000=1,500,000 EUR
Gross Profit 1,500,000
Gross Profit Margin= = =0 .75=75 %
Revenues 2,000,000

2.2- What if the Gross Profit Margin is -0.2 (-20%) ?

???
 2.3- What if the Gross Profit Margin is 3.25 (325%) ?
???

2.4- What is the Operating Profit Margin?

Operating Profit =Gross Profit−Op .Costs=1,500,000−1,000,000=500,000

Operating Profit 500,000

Operating Profit Margin= = =0.25=25 %
Revenues 2,000,000

2.5- What is the profit for the period (before taxes)?

Profit before Tax=Op . Prof + Fin .Gain−Fin .Cost =500 k +100 k −200 k=400 k

2.6- If corporate taxes are 30%, what is the profit after taxes.
Taxes=30 % of 400,000=120,000 EUR

Profit after Tax=Prof before Tax−Tax=400 k−120 k =280 k EUR

2.7- If the equity of Company B is divided in 100,000 shares, what is the EPS
Profit after Tax 280,000 EUR
EPS= = =2.8
qty of shares 100,000 share

2.8- If the company decides to pay 50% of gains as dividends to shareholders, what
are the dividends per share?
EUR EUR
Dividends per share=50 % of EPS=0.5∗2.8 =1.4
share share

Given the following balance sheet for Company C:

Land+buildings 1,400,000 EQUITY 1,000,000

Fixtures 600,000
Non-current assets 2,000,000 Non-current liabilities 500,000

Inventories 1,200,000 Trade payables 800,000

Trade receivables 600,000 Taxation 100,000
Cash 200,000 Short-term debts 1,600,000
Current assets 2,000,000 Current liabilities 2,500,000

TOTAL LIABILITIES 3,000,000

ASSETS 4,000,000 EQUITY + LIABILITIES 4,000,000

3.1- 3.1.a. Calculate the current ratio.

current assets 2,000,000
current ratio= = =0.8
curren t liabilities 2,500,000

3.1.b. Is this a good score?

???
 3.1.c. Why?
???

3.2- Calculate the acid test ratio.

current assets−inventories 2,000,000−1,200,000
acid test ratio= = =…
curretn liabilities 2,500,000

3.3- Calculate the debt ratio.

Company D is presented with two different investment projects:

- Proj.A consists on doing an initial investment of 100,000€ now, and then the
Company will receive yearly incomes of 35,000€ during the next 3 years
- Proj.B consists on doing an initial investment of 100,000€ now, and then the
Company will receive yearly incomes of 25,000€, from the year after and during 5
years

If the cost of capital is a 6%

4.1- find the NPV of the above projects

So, lets find the Sum of the PVs. First, we’ll find the PVs (values in point t=0) of
all the cashflows involved in this project:

Proj.A:

-100 35 35 35
0 1 2 3

35 35 35
NPV A =∑ PVs=−100+ + + =−6,445
(1+ 0.06 ) ( 1+0.06 ) ( 1+0.06 )3
1 2

Proj.B: ???

4.2- Should your customer enter any of the projects? Which one? Why?
If the NPV is positive, then, Yes. Because the return of that project is higher than
the cost of capital “r”
If the NPV is negative, then, NO. Because the return of that project is lower than
the cost of capital “r”
 Formula sheet
TVM formula:
FV
Compound interest rate investment: FV =PV (1+r )
n PV =
( 1+ r )n

Working Capital Management formulas:

inventory
Inventory period=
annual COGS /365
acc . receivable
Acc . Receiveble period=
annual Sales/ 365
acc . payable
Acc . Payable period=
annual COGS/365
Cas h conversion cycle=( Inventory period+ Acc . Receiv period )− Acc . Pay period

Financial Ratios formulas:

current assets
Liquidity Ratios: current ratio=
curren t liabilities
current assets−inventories
acid test ratio=
curretn liabilities
cas h∧cas h equivalents
cash ratio=
curren t liabilities

total liabilities
Leverage Ratios: debt ratio=
total assets

total liabilities
debt equity ratio=
s h are h older s ' equity
operating profit
interest coverage ratio=
interest expenses

net sales
Efficiency Ratios: asset turnover ratio=
total assets
COGS
inventory turnover ratio=
average inventory
 net credit sales
receivable turnover ratio=
avearge account receivables
opening inventory+ closing inventory
average inventory=
2
opening A / R+closing A /R
average A / R=
2

GP
Profitability Ratios: gross marginratio=
sales
Operating income
operating marginratio=
net sales
net income
return on assets=
total assets
net income
return on equity=
s h are h older s ' equity

net earnings
Market Value Ratios: EPS=
total s h ares outstanding

Depreciation formulas:
initial value−residual value
- depreciation term (linear pattern): Dep .term=
useful lifetime
Value n=initial value−n∗Dep . term

- reducing balance (inverse exponential): Dep .ratio=1−

√
t residual value
initial value
n
Value n=initial value∗( 1−Dep .ratio )