Tutorial 1
Fundamentals of Finance for IB
A company has following figures for year 2019: Earnings Before Interest, Taxes and
Depreciation (EBITD) is €5,000, depreciation expense is €1,500, and interest expense is €500.
Corporate tax rate is 40 percent. The company decided to pay 50 percent of net income as
dividends to its shareholders.
Moreover, the company’s balance sheet is given below:
Cash
Trade receivables
Inventory
Gross long-term assets
Accumulated depreciation
Net long-term assets
Total assets
Balance Sheets (in €)
2018
2019
700
800
Trade payables
1,600
1,500
Notes payable
3,700
3,300
Long-term debt
?
?
22,000
?
Common Stock
18,000
17,000
Retained earnings
24,000
22,600
Total liab. & equity
2018
1,700
2,500
10,000
2019
900
500
11,000
7,500
?
?
7,000
?
?
1. Answer the following questions
a. Calculate missing values in 2018 and 2019.
b. Calculate shareholders’ equity in 2018 and 2019.
c. Calculate current assets and current liabilities in 2018 and 2019.
d. Calculate change in net working capital (NWC) from 2018 to 2019.
e. Calculate cash flows from operating activities including the change in NWC.
2. Compare equity financing with debt financing in terms of “order of the claims of owners
and debt holders”.
3. Suppose you own 100 shares of Vodafone which you intend to sell in the secondary
market. Will Vodafone receive any cash flows with your sale, explain.