Second call written test with solutions

Pagina 1

QUESTION 1 (3 points) GammaTech is a company specialized in manufacturing electronic devices. You have the following data extracted from the 2023 financial statements: • Total Assets: 240 mln€ • Third Part Liabilities (i.e., Total Liabilities) / Equity = 0.6 • EBIT = 40 mln€ • Income Taxes = 15 mln€ • ROE = 15% • ROI (EBIT / Invested Capital1) = 20% • Financial income = 5 mln€ • Interest expenses (i.e., passive interests on financial debts) are 70% of overall financial expenses • Net Profit from discontinued operations = 0 Which of the following statements about the average cost of Gamma Tech's financial debt is CORRECT? A. The average cost of financial debt is around 5 % B. The average cost of financial debt is around 15 % C. The average cost of financial debt is around 11 % D. The average cost of financial debt is around 6 % SOLUTION: Average cost of financial debt = Interest Expenses/Financial Debt (ie., Financial Liabili�es) To compute the denominator: We start from the equa�on Total assets = Equity+ Third Part Liabili�es. From the text, we know that: Third Part Liabili�es/Equity = 0.6 → TPL = 0.6*Equity Total Assets= 240 mln € Total Assets = Equity + 0.6 Equity è Equity = total assets/ (1 + 0.6) → Equity = 240 mln€/ 1.6 = 150 mln€ We then compute the financial liabili�es from the inversed formula of ROI. ROI= EBIT/ (Equity + Financial liabili�es) è Financial liabilities = EBIT/ROI – Equity = 40 mln€/ 20% - 150 mln€ = 50 mln€ To compute the numerator: Knowing equity, we can find net profit as part of the calcula�on for EBT. Net profit = ROE * Equity = 15% * 150 mln€ = 22.50 mln€ EBT= net profit + income taxes = 22.50 mln€ + 15 mln € = 37.50 mln € We can now determine the financial expenses with the provided EBIT from the text and calculated EBT: EBT = EBIT + Financial income –…