Reference no: EM132485510

BACKGROUND

Point 1: The company ABC, L.C. manufactures some products with an average sales price of € 25/unit, with fixed annual costs of € 110,000. The average unit variable costs are € 5.

DEVELOP

Question a) At what volume of production will the threshold of profitability be reached?

Fixed cost + variable cost =revenue

Question b) Assuming that annual sales are estimated at 20,000 units, being the distribution evenly over a year, on what date will the break-even point be reached?

Question c) What would be the sales value or turnover corresponding to the threshold of profitability?

Point 2. The company Derabel, S.A. is considering buying a new machine for its production process. This project means an initial cost of € 200,000 and the machine is estimated to have a useful life of 5 years. The maximum productive capacity of the machine is 200,000 units per year. However, the first year it is expected that the activity will be 70% of the maximum installed capacity, reaching 100% from the second year.

During the first year, the unit sales price will be € 2.50, the unit variable cost € 1.50 and the fixed annual cost € 60,000, resulting in cumulative yearly increases of 4% in the price of the product sale, 3% on variable costs and 2% on fixed costs.

Also, it is assumed that:

1. The company uses a linear depreciation system, and the residual value of the machine is € 25,000. Besides, the sale value of the machine at the end of its physical life will be € 30,000 that will be charged in cash.
2. The nominal discount rate (kN) used by the company is 8% per year and constant for the planned period.
3. The tax rate that taxes the benefits is 25%. Taxes are paid in the period following their accrual.
4. All production is sold in the reference period.
5. All income and expenses are charged and paid in cash.

Question a: With the above data, determine the Net Cash Flows after taxes of the project described above. Calculate the net absolute return.

Point 3. The person in charge of the finances of the company MGT, S.A. wants to know the company's situation concerning the industrial sector to which it belongs. For this, it has the following information regarding the industry:

1. General liquidity ratio is 1.55; the acid test is 1.20, and the ratio between the available and the current liabilities is 0.95.
2. The debt ratio stands at 1.25. The margin on sales is 21%. The investment rotation is 1.45 times.
3. Economic profitability is around 23%, and financial profitability is 29%
4. The data referred to the company (in thousands of €) are the following:

Assets Liability and Net Equity

Non-current asset (net) 170 Equity 125

Stocks of finished products 45 Reservations 25

Clients 65 External Resources 105

Banks 70 Loans 65

Supplier 30

Total Assets 350 Total Net Equity 350

In addition, it is known that:

1. Sales are € 250,000 and its direct cost of € 105,000.
2. Amortization of € 70,000.
3. Long-term debt generates interest at 5%, short-term bank loans at 7%, and the departure of suppliers does not accrue any interest.
4. The Corporation Tax is 25%.

Question a: Calculate the liquidity, acid test and debt ratios, and compare them with the sector data. It also calculates the economic and financial returns, and the margin on sales and investment rotation, even making a comparison between the company and sector.

Point 4. An investment requires an initial disbursement of € 2,500,000 and the duration of the project is 3 years, in the first of which it generates a cash flow of € 1,500,000, in the second € 3,700,000 and the third € 4,100,000.

Question a: Calculate the Net Present Value of the investment, knowing that inflation is 3% cumulative annually and that the required profitability in the absence of inflation is 8%.

Question b: Calculate the actual internal rate of return of the previous investment.

Point 5. We know the following data of the company Perfilados, S.A:

1. It bought and consumed € 105,000 in raw materials for the manufacture of its product and, on average, maintained a stock level of them in the stock of € 9,250. Calculate the average storage period.

Question a: Calculate the average storage period.

Question b: The cost of its annual production is € 198,000, and the average value of the products under development is € 11,000. Calculate the average manufacturing period.

Question c: Taking into account that the company exclusively sold all its annual production and that the average value of its stock in finished goods warehouse was € 18,500, it calculates its average sales period.

Question d: Assuming that the company sold its products for an amount of € 290,000 and that the customers had on average a debt with the company of € 17,000, it calculates the average collection period.

Question e: With the data obtained in the previous points, it calculates the average period of economic maturity of Perfilados, S.A.

Point 6. We know the following data of an investment that the company has made:

1. An initial disbursement of € 2,000,000 and generates the collections and payments in the successive years of its duration that are shown in the following table:

Years Collection (€) Payments (€)

1 Year 4.500.000 3.800.000

2 Year 5.500.000 4.500.000

3 Year 6.000.000 5.000.000

4 Year 4.000.000 3.200.000

Question a: Calculate the IRR of the previous project. Justify for what type of discount this investment will be made.