EXERCISE 1
Alfa srl is a company that produces car parts. At the end of 2018, it has the following Balance Sheet:
ASSETS 2018
Fixed assets
Raw materials inventories
WIP inventories
Final product inventories
Accounts receivables
Cash
Total assets
700.000
350.000
530.000
550.000
300.000
700.000
3.130.000
LIABILITIES 2018
Paid in capital
Retained earnings
Net income
Credit risk fund
Short-term bank debt
Long -term bank debt
Current liabilities
Total liabilities
400.000
200.000
350.000
80.000
530.000
1.000.000
570.000
3.130.000
During the 2019, the following events take place:
1. 1.000.000€ of revenues are realized and the 70% is cashed immediately.
2. Accounts receivables in the initial Balance Sheet are cashed at 90%, meanwhile the 10% is
uncollectible.
3. Raw materials’ purchases are 250.000€ and the 80% is paid cash only.
4. At the end of the year raw materials inventory is € 450,000, € 300,000 of WIP are completed
and final product inventories are € 420,000.
5. The 1st July it is sold an old machine, purchased at 250.000€, amortized for half, sold for
150.000€.
6. At 31/12/2019 it is bought a new machine to cover the sold one at the price of 500.000€,
financed by a new bank debt that cover the 60% of the purchase, meanwhile the rest is paid
with cash. Annual amortization is 50.000€.
7. At 31/12/2019 50.000€ of current liabilities are paid and 10% of the long-term debts present
at the beginning of the period. Interest tax is 6% with the same reasoning as the debts.
8. Services costs are 30.000€, labour’s costs are 25.000€, both of them paid completely.
9. We pay all payable accounts from the previous year
10. Company distributes net income of the previous year as dividends. Taxes rate is 50% and it
is paid cash only
Based on this information, prepare Income Statement (selling cost classification) and Balance sheet
for 2019.
EXERCISE 2
Paper spa is a company that produces papers and recycles cardboards. It has the following Balance
Sheet at the end of 2019 (data expressed in Euro):
Assets
Fixed assets
WIP inventory
Cash
Prepayments
Total assets
2019
500,000
300,000
250,000
30,000
Liabilities
Paid in capital
Retained earnings
Net income
Account payable
Taxes debt
Bank debt
1080,000 Totals liabilities
2019
200,000
500,000
230,000
55,000
43,000
52,000
1080,000
Based on this information:
1) Evaluate company’s strength by calculating Acid Test, Equity Ratio and the shareholder equity
ratio.
2) How do you evaluate the choice to purchase a new building with a new loan to reinforce the
company’s situation?
EXERCISE 3
The administrative director of Beta Spa, has given to the general director the following table with
three products’ costs of the company:
Total costs
Direct materials cost
(€)
Direct labor cost (€)
Specific fixed costs (€)
General fixed costs (€)
Total
A
4.500 €
B
8.000 €
C
3.000 €
Total
15.500 €
5.000 €
3.500 €
2.613 €
15.613 €
6.000 €
4.000 €
4.645 €
22.645 €
2.000 €
1.500 €
1.742 €
8.242 €
13.000 €
9.000 €
9.000 €
46.500 €
Units produced for each one are:
Units
A
1500
B
2000
C
1000
Specific fixed costs are avoidable for the interruption of the referred product’s production. Direct
materials cost and direct labor cost are variable. General fixed costs are allocated on the total of
direct materials cost (15.500 €). All data are about 2018.
The general director must decide:
1. 2000 units of product B is sold at the price of 24€. If the principle competitor cuts the price
to 20€, Beta could have two alternatives:
a. Take price unchanged, sell only 1500 units of B;
b. Cut the price to 20€ and continue to sell 2000 units of B.
What decision is the most convenient for the company?
2. Calculate the Breakeven point revenue for the company, assuming a product mix of 35%,
40% and 25%, and price 20 €, 24 € and 14 €.
Use the previous text
EXERCISE 4
Mr. Giuseppe Bianchi is thinking to interrupt his electricity supply contract with Enel in his house in
Sicily and to install a new energy plant with solar panels (today purchased at 15.000 euro) to supply
the annual energy needs of this house. By calculating annual medium solar exposition in that area,
it can be estimated that the plant should produce energy for 4500 KWh every year. Moreover
Giuseppe Bianchi knows that annual medium consume of energy is 2700 KWh and that Enel’s cost
today for buying energy is 0,2 €/KWh plus 20 euro every semester.
By considering that the new solar energy’s plant would lead to annual costs of maintenance of 300
euro (100 euro of insurance) and that lifetime is 20 years, established with NPV and recovery
period’s calculate, if the investment is convenient to Giuseppe. Assume also an annual discount rate
of 5% and ignore tax rate (=0).