AFC 2024 25 Second call Solution

Pagina 1

QUESTION 1A - 3 POINTS BetaTech Ltd produces and sells advanced electronic components. It is November 2024, and you are finali sing the budgeting process for the year 2025. Shareholders expect you to compute the budgeted Return On Equity (ROE). You have the following budgeting information for 2025: • Revenues: 8,500,000 € • Net Profit Margin (NPM): +5% • Income Tax Rate: 30% • Net Financial Expenses (Financial Expenses – Financial Revenues): +125,000 € • Financial Leverage (calculated on Total Liabilities): 2.5 • Current Ratio: 1.4 • Return On Assets (ROA): +9% You also know that: • Net Profit from discontinued activities: 0 € • There are no other financial income or expenses. What is the budgeted Return O n Equity (ROE) for BetaTech Ltd in 2025? Please round up all calculations to the second decimal place for numbers and the fourth decimal place for percentages (e.g., 0.136452 must be rounded up to 0.1365 = 13.65%). A. 31.50% B. 22.05% C. 18.29% D. None of the other answers Solution Correct answer: option C ROE=Net Income/Equity Computation of numerator: calculate the Net Income using the value of NPM from the text: NPM=Net Income/Revenues ⇒ Net Income = NPM*Revenues ⇒ Net Income = 5%*8,500,000 €= 425,000 € Computation of denominator: EBT=Net income/(1 - Income Tax rate) ⇒ EBT=425,000 €/(1 -0.30) ⇒ EBT= 607,142.86 € EBIT=EBT+(Financial Expenses − Financial Revenues) ⇒ EBIT= 607,142.86 € + 125,000€ = 732,142.86 € Using the ROA formula to calculate the Total Assets: ROA=EBIT / Total Assets ⇒ Total Assets=EBIT / ROA⇒ Total Assets=732, 142.86€/ 0.09 =8,134,920.67 ⇒ Total Assets= 8,134,920.67€ Starting from the formula of financial leverage, you can calculate the Equity: Financial Leverage=Total Liabilities/ Equity ⇒ Equity= Total Liabilities/ Financial Leverage Substituting in…