Financial management Q&A
Financial Management
Final Exam
3/2/2013
Q1. Calculating NOPAT:
NOPAT = Operating Income (EBIT) x (1 – Tax)
Operating Income (EBIT) = 700
Tax = 0.35
NOPAT = 700 x (1 – 0.35) = $455.00
Q2. Income Statement:
Income Statement (EUR)
Sales
15,000
Operating cost
7,500
Depreciation
1,200
Amortization
0
Bonds
6,500
Bonds interest
6.25%
Tax rate (income)
35%
EBIT = Sales – Operating cost – Depreciation – Amortization
EBIT = 15,000 – 7,500 – 1,200 – 0
EBIT = EUR 6,300
Interest on Bonds = 6,500 x 6.25%
Interest on Bonds = EUR 406.25
EBT = EBIT – Interest on Bonds
EBT = 6,300 – 406.25
EBT = EUR 5,893.75
Tax = EBT x Tax rate
Tax = 5,893.75 x 35%
Tax = EUR 2,062.81
Net income = EBT – Tax
Net income = 5,893.75 – 2,062.81
Net income = EUR 3,830.94
Q3. Return on Equity:
Assets
EUR 197,500
Sales
EUR 307,500
Net income
EUR 19,575
Debt-to-total-assets ratio
37.5%
Net income increment (after machines)
EUR 33,000
Before machines:
ROE = Net income / Common equity
Common equity = Assets – Liabilities
Liabilities = Assets x Debt-to-total-assets ratio
Liabilities = 197,500 x 37.5%
Liabilities = EUR 74,062.5
Common equity = 197,500 – 74,062.5
Common equity = EUR 123,437.5
ROE = 19,575 / 123,437.5
ROE = 15.86%
After machines:
ROE = 33,000 / 123,437.5
ROE = EUR 26.73%
ROE shall be improved after buying the machines from 15.86% to 26.73%.
Improvement percentage = (26.73% - 15.86%) / 15.86%
Improvement percentage = 68.54%
Q4. Future Value:
FV = Original investment x (1 + Interest Rate) ^Number of Years
FV = 1500 x (1 + 3.5%) ^5
FV = 1500 x 1.19
FV = $ 1781.53
Q5. Present value for uneven cash flows:
Years
0
1
2
3
4
CFs
$0
$75
$225
$0
$300 i = 6.25%
PV = FVn / (1 + i) ^n
PV = [(FV0 / (1 + 6.25%) ^0) + (FV1 / (1 + 6.25%) ^1) + (FV2 / (1 + 6.25%) ^2) = (FV3 / (1 + 6.25%) ^3) + (FV4 / (1 + 6.25%) ^4)]
PV = [0 + (75/1.0625) + (225/ (1.0625) ^2) + 0 + (300/ (1.0625) ^4)]
PV = 0 + 70.59
Final Exam
3/2/2013
Q1. Calculating NOPAT:
NOPAT = Operating Income (EBIT) x (1 – Tax)
Operating Income (EBIT) = 700
Tax = 0.35
NOPAT = 700 x (1 – 0.35) = $455.00
Q2. Income Statement:
Income Statement (EUR)
Sales
15,000
Operating cost
7,500
Depreciation
1,200
Amortization
0
Bonds
6,500
Bonds interest
6.25%
Tax rate (income)
35%
EBIT = Sales – Operating cost – Depreciation – Amortization
EBIT = 15,000 – 7,500 – 1,200 – 0
EBIT = EUR 6,300
Interest on Bonds = 6,500 x 6.25%
Interest on Bonds = EUR 406.25
EBT = EBIT – Interest on Bonds
EBT = 6,300 – 406.25
EBT = EUR 5,893.75
Tax = EBT x Tax rate
Tax = 5,893.75 x 35%
Tax = EUR 2,062.81
Net income = EBT – Tax
Net income = 5,893.75 – 2,062.81
Net income = EUR 3,830.94
Q3. Return on Equity:
Assets
EUR 197,500
Sales
EUR 307,500
Net income
EUR 19,575
Debt-to-total-assets ratio
37.5%
Net income increment (after machines)
EUR 33,000
Before machines:
ROE = Net income / Common equity
Common equity = Assets – Liabilities
Liabilities = Assets x Debt-to-total-assets ratio
Liabilities = 197,500 x 37.5%
Liabilities = EUR 74,062.5
Common equity = 197,500 – 74,062.5
Common equity = EUR 123,437.5
ROE = 19,575 / 123,437.5
ROE = 15.86%
After machines:
ROE = 33,000 / 123,437.5
ROE = EUR 26.73%
ROE shall be improved after buying the machines from 15.86% to 26.73%.
Improvement percentage = (26.73% - 15.86%) / 15.86%
Improvement percentage = 68.54%
Q4. Future Value:
FV = Original investment x (1 + Interest Rate) ^Number of Years
FV = 1500 x (1 + 3.5%) ^5
FV = 1500 x 1.19
FV = $ 1781.53
Q5. Present value for uneven cash flows:
Years
0
1
2
3
4
CFs
$0
$75
$225
$0
$300 i = 6.25%
PV = FVn / (1 + i) ^n
PV = [(FV0 / (1 + 6.25%) ^0) + (FV1 / (1 + 6.25%) ^1) + (FV2 / (1 + 6.25%) ^2) = (FV3 / (1 + 6.25%) ^3) + (FV4 / (1 + 6.25%) ^4)]
PV = [0 + (75/1.0625) + (225/ (1.0625) ^2) + 0 + (300/ (1.0625) ^4)]
PV = 0 + 70.59