Full exam for Accounting, Finance & Control in the Management Engineering degree programme at Politecnico di Milano. The document covers: ACCOUNTING, FINANCE AND CONTROL WRITTEN TEST CALL 3 _ 1st July 2020 1. You are required to evaluate the beta levered (BL) for Company A. You know a few data extracted from the 2019 Financial Statements: • Sales = 96,000 k€ • EBT = 24,000 k€ • Taxes = 6,000 k€ • Financial
Full exam for Accounting, Finance & Control in the Management Engineering degree programme at Politecnico di Milano. The document covers: ACCOUNTING, FINANCE AND CONTROL WRITTEN TEST CALL 3 _ 1st July 2020 1. You are required to evaluate the beta levered (BL) for Company A. You know a few data extracted from the 2019 Financial Statements: • Sales = 96,000 k€ • EBT = 24,000 k€ • Taxes = 6,000 k€ • Financial
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ACCOUNTING, FINANCE AND CONTROL WRITTEN TEST CALL 3 _ 1st July 2020 1. You are required to evaluate the beta levered (BL) for Company A. You know a few data extracted from the 2019 Financial Statements: • Sales = 96,000 k€ • EBT = 24,000 k€ • Taxes = 6,000 k€ • Financial leverage (D/E) = 0.5 You also know the following information about Company A: • It uses CAPM to compute its cost of equity; • Cost of debt (2019) = 5.2%; • Market premium (2019) = 6%; • Risk free rate (2019) = 0.5%; • WACC (2019) = 7.0%. What is the company beta levered (BL)? (4 Points) A. BL=1.60 B. BL=1.46 C. BL=1.34 D. BL=1.75 Solution D/E= 0.5 E = 67% of the capital structure and D=33% of the capital structure E/(D+E) =67% D/(D+E) =33% tc=6,000/24,000 = 25% Ke = [WACC – Kd(1-tc) *D/(D+E)] / E/(E+D) Ke = [7% – 5.2% (75%) *33%] / 67% = 8.55% BL = (Ke – rf) / (rm - rf) BL = (8.55-0.5)/ (6.5 – 0.5) = 1.34 Wrong answers: A: Taking Financial leverage as the equivalent of D/(D+E) B: Identify the market premium as the market return D. Mistakes of A and B combined 2. Company B produces sports equipment. You know the following data taken from the Financial Statements of Company B: Company B data [k€] on December 31st, 2019: • EBT: 40,000 k€ • Taxes: 15,000 k€ • D&A: 22,000 k€ • Payables: 25,000 k€ • Receivables: 30,000 k€ • Inventories: 50,000 k€ • Financial Revenues: 1,500 k€ • Financial Expenses: 1,000 k€ • Debt: 10,000 k€ • Net Profit: 25,000 k€ Company B data [k€] on December 31st, 2018: • EBT: 35,000 k€ • Taxes: 13,125 k€ • D&A: 18,000 k€ • Payables: 20,000 k€ • Receivables: 35,000 k€ • Inventories: 55,000 k€ • Financial Revenues: 1,500 k€ • Financial Expenses: 1,000 k€ • Debt: 10,000 k€ • Net Profit: 21,875 k€ On top of the above data, you also know that: • The company has not invested in new assets…
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