Management Engineering - Accounting, Finance & Control

Full exam

ACCOUNTING, FINANCE AND CONTROL (Prof. P. Maccarrone) 2025/26 FIRST CALL WRITTEN TEST – 30 January, 2026 ANSWERS SHEET WARNING: FILLING THIS COVER PAGE IS M A N D AT O R Y Please fill in the following table using CAPITAL LETTERS: (PERSONAL) NAME SURNAME (FAMILY NAME) PERSON CODE (CODICE PERSONA) or STUDENT ID (N. MATRICOLA) At the end of the test, please fill out the table below by writing the letter corresponding to your answer for each question. Please note that it is MANDATORY to have the test evaluated. If you like, you can also tick the corresponding answer on the following sheets. But please note that in case of any discrepancy, only the letter marked in the table below will be considered. AVAILABLE TIME: 1 HOUR If you wish to withdraw from the exam, please write “withdraw” at the top of this page and communicate it to the teacher in the room. You will have to hand over this copy to the classroom supervisor. Then, you will be free to leave the room. Notes: • consider that 1k€ = 1 thousand euros and 1mln€ = 1 million euros; • the international convention for decimal and thousand separators is used – i.e., the comma is used to separate groups of thousands, and the dot is used to separate decimals; • Calculations in the exercises should be rounded to two decimal places; • NO PENALTY FOR WRONG ANSWERS Question 1A 1B 2A 2B 3A 3B 4 5 6 7 8 9 Your Answer QUESTION 1A – 3 POINTS AABB is a company that manufactures and markets two very different products (AA and BB). AA has seasonal demand concentrated between April 1st and June 30th (i.e., every year, no AA units are sold before April 1st or after June 30 th). Instead, BB is a product with a demand evenly distributed throughout the year. For both products, the company adopts a Zero Inventory logic (meaning that it has no inventories for both finished products and raw materials inventories). With reference to the year 2025, the following data extracted from the company's accounting documents are available: • Revenues (AA) = 1,000 k€ • Revenues (BB) = 1,500k€ • DSO (AA) = 3 months (calculated over 12 months) • DSO (BB) = 4 months (calculated over 12 months) • DPO (AA) = 3 months (calculated over 12 months) • DPO (BB) = 2 months (calculated over 12 months) • ROA = 10.0% • ROI (calculated using Financial Liabilities) = 12.5% • WACC = 8.0% • NPM (Net Profit Margin) = 4% • Income tax rate = 50% • Net financial expenses (accrual logic) = + 50 k€ It is also known that trade payables are the only non-financial liabilities. What is the value of Net Operating Working Capital (NOWC) at the end of the year 2025? Please round numbers to the second decimal place and percentages to the fourth decimal place (e.g., 12.26% = 0.1226). A. None of the other answers is correct B. + 250 k€ C. 0 k€ D. – 100 K€ Solution NOWC = Trade Receivables + Inventories – Trade Payables Since the company works in a zero inventories logic, the value of inventories is zero. So, End Inventories (2025) = 0 Demand for the AA product is seasonal and ends on June 30th. Since the DSO is equal to 3 months, the last units sold at the end of June will be collected on average after 3 months, i.e. around the end of September, well by the end of December. This means that sales of product AA do not generate trade receivables recorded in the 2025 financial statements. In contrast, sales of the BB product are evenly distributed throughout the year. Since the DSO is 4 months, it means that units sold from September onwards will be cashed in the following year. In other words, Trade Receivables at the end of 2025 will be equal to the revenues of the months between September and December. The company works in a Zero Inventory logic for both finished products and raw material inventories. So, Trade Receivables (2025) = Revenues (BB) * 4/12 = 1,500 * 4 / 12 = 500 k€ As far as trade payables are concerned, looking at the available data, their value can be obtained by inverting the ROI formula. In fact, ROI = EBIT / Invested Capital where Invested Capital = Total Assets – Liabilities without an explicit interest rate. The text says that trade payables are the only liabilities without an explicit interest rate, so Invested Capital = Total Assets – Trade Payables. It is now a matter of calculating the values of EBIT and Total Assets. Total Assets can be derived by inverting the ROA formula. In fact, ROA = EBIT / Total Assets. Knowing EBIT, being given the ROA value, Total Assets can be determined. Therefore, it is necessary to determine the EBIT value. This is possible by constructing the income statement from the bottom up. Knowing that NPM = Net Income / Revenues, Net Income can be determined. Net Income = NPM * Revenues = 4% * (1,000 + 1,500) = 100 k€ Knowing that Net Income = EBT (1-tax) and being tax = 50%, it can be determined EBT = Net Income / (1-tax) = 100 / (1-50%) = 200 k€ Knowing that net financial expenses = 50 k€ EBIT = EBT + net financial expenses = 200 + 50 = 250 k€ can be determined Knowing that EBIT = 250 k€, Total Assets can be determined as Total Assets = EBIT / ROA = 250 / 10% = 2,500 k€ Knowing the value of Total Assets, we can determine the value of Invested Capital Invested Capital = EBIT / ROI = 250 / 12.5% = 2,000 k€ It is now possible to determine the value of Trade Payables Trade Payables (2025) = Total Assets – Invested Capital = 2,500 – 2,000 = 500 k€ Summarising, NOWC (2025) = Trade Receivables + Inventories – Trade Payables = 500 + 0 – 500 = 0 k€ Wrong Answers: • Answer A is wrong because answer C is correct • Answer B is wrong because it has been assumed that sales from product AA generates Trade Receivables • Answer C is correct • Answer D is wrong because net financial expenses are considered with the opposite sign in the calculation of EBIT QUESTION 1B – 3 POINTS Considering again the case of company AABB and all data shown previously, additional information about the year 2025 is offered: • Cash flow from operating activities (Net Cash Flow from Operations) = 100 k€ • Depreciation = 200 k€ • CAPEX coverage ratio = 1.25 • Cash inflows from disposal of assets = 20 k€ • Cash inflows from recurrent financial income (i.e., active interests on financial credits)= + 20k€ • Cash outflows from recurrent financial expenses (i.e., passive interests on financial debts) = - 50k€ • Issue of 10,000 new shares at a price of 15€/share; all shares have been subscribed, even if only the 80% of them have been paid by shareholders by the end of 2025 • Variation year-to-year (2025 vs 2024) of “Cash and cash equivalents” = 50k€ • Net Income (2024) = 80% * Net Income (2025) • A bank debt for 70k€ with an average yearly cost of debt of 5% has been repaid on December 31 st, 2025 • No new bank debts or bonds have been opened Based on the available data, what is the value of the Pay Out Ratio (i.e., the percentage of Net Profit distributed into dividends) in 2025 (where 2025 = year in which dividends have been distributed)? A. 87.5% B. 50.0% C. 12.5% D. None of the other answers Solution Pay Out Ratio (2025) = Dividends (2025) / Net Income (2024) Net Income (2025) = 100 k€ (see the solution of the previous exercise) Net Income (2024) = 80% * 100 = 80k€ Dividends (2025) can be determined by the information made available on the Cash Flow Statement Knowing that the Variation of “Cash and cash equivalents” = Cash Flow from Operating Activities + Cash Flow from Investing Activities + Cash Flow from Financing Activities, it is possible to determine Dividends (2025) as part of the Cash Flow from Financing Activities Cash Flow from Operating Activities = + 100 k€ Cash Flow from Investing Activities = Cash inflow from disposals – Cash outflow from Investments Cash outflows from Investments = CAPEX = Cash Flow from Operating Activities / CAPEX coverage = 100 / 1.25 = 80k€ Cash Flow from Investing Activities = 20 – 80 k€ = - 60k€ Cash flow from Financing Activities = Variation of Bank Debts + Variation of Share Capital – Dividends = -70.000 + 10,000 * 15€ * 80% - Dividends = - 70 + 120 – Dividends Knowing that the variation year-to-year (2025 vs 2024) of “Cash and cash equivalents” = 50, it is possible to determine Dividends paid in 2025 50 = + 100 – 60 – 70 + 120 – Dividends This means that Dividends = 40 k€ Pay Out Ratio (2025) = 40 / 80 = 50% The correct answer is B Wrong answers: • Answer A is wrong because the increase of share capital has been calculated on the total shares issued and not only those actually paid by the shareholders • Answer C is wrong because cash inflows from recurrent financial income and cash outflows from recurrent financial expenses have been included in the calculation of the Cash Flow from the Financing Activities, while they are included in the Cash flow from Operating Activities • Answer D is wrong because answer B is correct QUESTION 2A – 3 POINTS You have the following information concerning the 2026 budget of company E&E: • Inventory Turnover Rate (ITR) = 8 • Days Sales Outstanding (DSO) = 93 days (calculated on 365 days) • 2026 Revenues are estimated 8% higher than in 2025 • Trade Payable = 32.15 M€ (9% higher than in 2025) • EBIT Margin = +9.50% • D&A = 9.60 M€ • FCFF = +3.76 M€ • Total Inventory = 18 M€ • Non-Current Assets = 84.8 M€ • Income tax rate = 25% You also know that: • All data concerning balance sheet items are end-of-year values; • DSO and ITR are not supposed to change from 2025 to 2026; • All investments in new (non-current) assets (i.e., CAPEX) will be paid by the end of 2026; • No already existing non-current assets are expected to be sold or disposed of in 2026. Based on this information, what is the value of Non-Current Assets (NCA) for company E&E at the end of 2025? Please round all values to the second decimal place (after each computation). A. Around 67.30 M€ B. Around 80.02 M€ C. Around 79.70 M€ D. None of the other answers Solution Based on the available information, we can proceed to calculate: • Revenues (2026) = Inventory (2026) * ITR = 18 * 8 = 144 M€ • Revenues (2025) = Revenues (2026)/(1 + 8%) = 133.33 M€ • Inventory (2025) = Revenues (2025)/ITR = 133.33/8 = 16.67 M€ • Trade Receivable (2026) = Revenues (2026) * DSO/365 = 144 * 93/365 = 36.69 M€ • Trade Receivable (2025) = Revenues (2025) * DSO/365 = 133.33 * 93/365 = 33.97 M€ • Trade Payable (2025) = Trade Payable (2026)/(1 + 9%) = 29.50 M€ • EBIT (2026) = Revenues (2026) * EBIT Margin (2026) = 144 * 9,50% = 13,68 M€ Using the FCFF framework: EBIT 13,68 -tax*EBIT -0.25*13,68 + D&A 9,60 + Trade Receiv (s -e) -2,72 + Inv (s-e) -1,33 + Trade Payable (e -s) 2,65 - Delta Capex (or Net Capex) -(84,8 - X+9,60) FCFF 3,76 And then NCA (2025) = (FCFF – EBIT + t*EBIT - D&A - Acc Rec (in - fin) - Inv (in-fin) - Acc Pay (fin-in) + NCA (2026) + D&A) = 79.70 M€ The correct answer is C Wrong answers: A. Wrong sign of Net Operating Working Capital B. Wrong calculation of 2025 Revenues (= (1-0,08)*Rev (2026) instead of Rev (2026)/(1+ 0,08) QUESTION 2B – 3 POINTS You have the following additional info about company E&E: • budgeted FCFF in subsequent years (i.e., after 2026; data in M€): 2027 2028 2029 2030 3.90 4.28 4.12 4.30 • annual growth rate of FCFF beyond 2030: 3% • The company has no defined (i.e., predetermined) limited life • D/E of E&E = 1.5 • The company is based in Italy • Average EU 10Y bond yield: 3.1% • Average Italian 10Y bond yield: 3.5% • Average German 10Y bond yield: 2.5% • The average market return (based on the investable market) is 8.2% • The unlevered Beta of the industry in which E&E operates is 0.95 • The Credit Default Spread of E&E is evaluated at 6.3%. Based on this information, what is the Enterprise Value of E&E? (round to the second decimal place in every calculation – i.e., in each intermediate/computational step. In case of percentages, use four decimal places – for ex, 0.84 % = 0.0084 -. Take 2026 as year 1) A. Around 58.29 M€ B. Around 55.22 M€ C. Around 59.16 M€ D. None of the other answers Solution We start from the computation of Ke (cost of equity capital). According to CAPM, we have: Ke = rf + Bl * (rm – rf) As for rf: since the company is based in Europe, we have to use as a proxy the yield of 10Y German bonds (since this is considered the “least risky investment in the Eurozone”). As for Bl (levered beta): we have the unlevered beta of the industry, and we “lever” it using company-specific data: Bl (E&E) = Bu (industry) * (1 + (1-t)*D/E) = 0.95 * (1 + (1-0.25)*1.5) = 2.02 The rm value, instead, is provided by the text. So: ke = 2.5 + 2.02*(8.2 – 2.5) = 14.01% As for kd, we can use the following formula: kd = rf + CDS = 2.5 + 6.3 = 8.8 % Now, we can proceed to the calculation of WACC: WACC = ke * (E/(D+E)) + kd * (D/(D+E))*(1-t) = 14.01 * (1/(1+1,5)) + 8.8 * (1.5/(1+1,5))*(1-0.25) = 9.56 % Please note that you do not need to know the exact values of E and D (the ratio is sufficient to compute the WACC). Now we can proceed to the computation of TV using the appropriate formula (g>0 but lower than WACC, infinite time horizon: TV (2030) = FCFF (2030) * (1+g) / (WACC – g) = 4.30 * (1 + 0.030) / (0.0956 – 0.030) = 67.52 M€ And, then: EV = FCFF (2026)/(1+ WACC) + FCFF (2027)/(1+WACC) 2+… + FCCF (2030)/(1+WACC) 5 + TV (2030)/(1+WACC) 5 = 58.29 M€ The correct answer is A. Wrong solutions: B: wrong computation of WACC (no tax shield) C: wrong computation of ke (using rf of Italian bonds) QUESTION 3A – 3 POINTS GEARTECH is a privately held company that produces standardized products. An external analyst applied a relative valuation approach and estimated the Enterprise Value (EV) of GEARTECH at around 459 M€. The CFO asks you to verify which multiple was used by the external analyst in the valuation. The following table presents the data used by the analyst, which refers to three comparable companies she used for relative valuation. Company Financial Liabilities (M€) Cash (M€) Market Capitalization (M€) EV (M€) Revenues (M€) EBIT (M€) Net Profit (M€) TORQ 400 100 500 648 1,000 80 40 AXION 350 90 460 600 920 72 36 PIVOT 300 80 420 520 880 64 32 For GEARTECH, you know that: • Revenues = 900 M€ • EBIT = 86 M€ • Net Profit = 28 M€ • Net Financial Position (NFP) = 100 M€ Which of the following answers is correct regarding the estimation of the EV of GEARTECH? Please round all calculations to the second decimal place. A. The analyst used EV/Revenues B. The analyst used EV/EBIT C. The analyst used P/E D. The analyst used EV/FCFE Solution A is wrong. EV/Revenues (TORQ)=648/1,000=0.65 EV/Revenues (AXION)=600/920=0.65 EV/Revenues (PIVOT)=520/880=0.59 Average EV/Revenues=0.63 EV = Average EV/Revenues*Revenues=0.63*900=567M€ Additionally, EV/Revenues is preferred when other multiples cannot be employed. B is wrong: EV/EBIT (TORQ)=648/80=8.10 EV/EBIT (AXION)=600/72=8.33 EV/EBIT (PIVOT)=520/64=8.13 Average EV/EBIT=8.19 EV = Average EV/EBIT*EBIT=8.19*86 = 704M€ C is correct: P/E (TORQ)=500/40=12.50 P/E (AXION)=460/36=12.78 P/E (PIVOT)=420/32=13.13 Average P/E=12.80 Equity= Average P/E*Net Profit=12.80*28=358.49M€ EV=Equity+NFP=358.49+100=458.49M€ D is wrong because the proposed multiple mixes up the asset side and equity side approaches, and it is not coherent with the structure and setting of the company. QUESTION 3B – 3 POINTS Still regarding the GEARTECH case, you are informed that the analyst's initial panel of potentially comparable companies also included two additional firms, which were not retained in the final valuation. The main financial data of these two additional comparable companies are reported below. Company Financial Liabilities (M�) Cash (M�) Equity (M�) EV (M�) Revenues (M�) EBIT (M�) Net Profit (M�) DRIVE 180 80 420 820 950 -8 30 SYSTEM 520 120 500 900 1,050 84 38 The data for GEARTECH remain unchanged from the previous exercise. Which of the following answers is correct? Please round all calculations to the second decimal place. A. If DRIVE and SYSTEM were included in the panel of comparable companies, the Equity Value of GEARTECH would have been around 648 M€, based on the EV/Revenues multiple B. If DRIVE and SYSTEM were included in the panel of comparable companies, the EV of GEARTECH could be estimated using one among EV/EBIT, P/E or EV/Revenues multiples C. If DRIVE and SYSTEM were included in the panel of comparable companies, the Equity Value of GEARTECH would have been around 367 M€, based on the P/E multiple D. None of the other answers Solution A is wrong EV/Revenues (DRIVE)=820/950=0.86 EV/Revenues (SYSTEM)=900/1,050=0.86 Additionally, EV/Revenues (TORQ)=648/1,000=0.65 EV/Revenues (AXION)=600/920=0.65 EV/Revenues (PIVOT)=520/880=0.59 Hence, Average EV/Revenues=0.72 EV=Average EV/Revenues * Revenues = 0.72*900=648M€ Equity Value= EV – NFD = 548M€ B is wrong as the EV/EBIT multiple cannot be used since the EBIT of DRIVE is negative C is correct if we assume that “Equity” (in the heading of the table) meant “Equity Value” (and, then, Market Capitalisation): P/E (DRIVE)=420/30=14 P/E (SYSTEM)=500/38=13.16 Additionally, P/E (TORQ)=500/40=12.50 P/E (AXION)=460/36=12.78 P/E (PIVOT)=420/32=13.13 Hence, Average P/E = 13.11 Equity = Average P/E * Net Profit = 13.11*28 = 367.08 EV = Equity + NFD = 467.08 Instead, if for “Equity” we intend “Book Equity”, the correct answer is D QUESTION 4 – 2 POINTS A manufacturing company is preparing its 2026 budgeted Income Statement by function. In 2026, production is expected to exceed sales, so the ending finished goods inventory will be higher than at the beginning of the year. The controller is deciding how to classify the following cost item in the budget: sales commissions, which are paid as a percentage of sales and relate to commercial activities. Which statement is correct? A. Sales commissions should be included in manufacturing costs, because they are variable and therefore part of the product cost. B. Sales commissions are period (i.e., non-manufacturing) costs and should be accounted for in the period; they affect EBIT but not inventory valuation. C. Sales commissions should be included in inventory valuation when inventories increase, because any cost can be deferred if production exceeds sales. D. None of the other answers Solution B is correct. Sales commissions relate to selling activities, so they are selling expenses (period costs). Period costs are expensed in the period and are not included in inventory valuation. A is wrong: being “variable” does not make a cost a product cost; its classification depends on function. C is wrong: not any cost can be deferred; only product costs can be capitalized in inventory. D is wrong Because B is correct QUESTION 5 – 2 POINTS Company XYZ is redesigning its internal reporting system and wants to build three dashboards: a corporate dashboard, a business unit dashboard and a further dashboard for the logistics function. Which of the following statements is correct? A. The same set of indicators should be used at all organizational levels, because this maximizes comparability between managers and alignment of the strategy between the three levels. B. The corporate dashboard mainly uses a few value-based indicators, BU focuses on accounting-based indicators, while the logistic function mainly focuses on value drivers. C. At corporate level, only non-financial drivers should be used because they are more timely; financial indicators should be reserved for operational levels. D. At operations level, value-based indicators should be the main KPIs because they directly link operational activities to shareholder value creation. Solution The correct answer is B. The selection of indicators varies according with the responsibility of the different levels of control according to which value-based indicators prevail at the corporate level, accounting based indicators at the BU level while value drivers prevail at the operational level. A is wrong: “one size fits all” ignores that timeliness, controllability, and required detail change significantly across levels. C is wrong: corporate reporting cannot exclude financial outcome measures; non-financial drivers complement, but do not replace, financial results. D is wrong: value-based indicators are typically too aggregated and not directly controllable at operations level, where value drivers are more appropriate. QUESTION 6 – 2 POINTS Company “Winter” is organized into two vertically integrated Business Units (BU): • BU Snow, which manufactures the wooden structure of a sled; • BU Flake, which purchases the wooden structure from BU Snow, completes the product by adding runners, braking elements, support mechanisms, decorations, and then sells the finished sled to retailers. Internal transactions between BU Snow and BU Flake are regulated through a transfer pricing system based on per unit marginal costs plus a mark-up (30%). Assume BU Snow transfers all units produced to BU Flake, and there is no inventory. You also know that Company Winter has a standard production volume of 25,000 sleds per year. In 2025, the actual production volume was 21,000 units, while variable unit costs and total fixed costs were in line with previous years. Based on the information provided, how did the profitability of the BU Snow in 2025 compare with the standard situation? A. It was lower than the standard profitability B. It was higher than the standard profitability C. It changed proportionally to the value of the mark-up D. It remained the same Solution In 2025, the BU Snow produced less units than planned, while variable unitary costs and total fixed costs remained unchanged. The transfer price per unit at which this BU Snow is selling the wooden structure is the variable unitary cost + the mark-up, so the profitability is equal to: Variable Cost*Units + Variable Cost*Units*0,3 – (Variable Costs* Units – Total fixed costs) = Variable Cost*Units*0,3 – Total fixed costs If the units produced decrease, the first item decrease proportionally to the mark up, but total fixed costs do not. As a result, fixed costs are spread over a lower number of units, resulting in a higher fixed cost per unit for BU Snow, which leads to a decreased profitability. Correct answer: a) Option b) is incorrect because profitability did not grow. Option c) is incorrect because fixed costs remained constant. Option d) is incorrect because answer a is correct. QUESTION 7 – 2 POINTS Which of the following sentences about quality drivers is correct? A. Quality drivers are characterised by a lower timeliness compared to accounting- based indicators B. Quality drivers can be used to assess whether the needs of potential customers are met C. Quality drivers require the estimation of future cash flows D. None of the other answers Solution A. Is wrong, since quality drivers provide information earlier than accounting-based data. B. Is correct. C. Is wrong, since no cash flow data are required to compute quality drivers. D. Is wrong, since B is correct QUESTION 8 – 2 POINTS Company P owns 80% of Company S. During 2025: • P provided services to S for €500k. As of 31 st December 2025, the payment is only partially settled: €300k remains unpaid (this means that the P balance sheet shows a trade receivable and the S balance sheet shows a trade payable). • In addition, S distributed part of the 2024 net income in the form of dividends. Which of the following consolidation adjustments are correct under IFRS 10? A. Eliminate only the intra-group revenues and costs (€500k), because receivables/payables are balance-sheet items and remain in the consolidated balance sheet B. Eliminate in full: (i) intra-group revenues and costs, (ii) intra-group receivables and payables, and (iii) intra-group dividends (both the income/expense and any related receivable/payable) C. Eliminate only the unpaid balance (€300k) because only unsettled transactions create consolidation distortions D. None of the other answers Solution B is the correct answer IFRS 10 requires the full elimination of intra-group transactions, including revenues/costs, receivables/payables, intercompany profits/losses, and intra-group dividends. This is because, from the consolidated perspective, intra-group transactions are like transactions between divisions of the same company and therefore must not appear in consolidated statements. A is wrong: IFRS 10 explicitly includes eliminating receivables and payables in full. C is wrong: even if fully settled in cash, intra-group revenues/costs would still be eliminated (settlement status doesn’t change the “intra-group” nature). D is wrong because B is correct QUESTION 9 – 2 POINTS Which of the following statements concerning the Corporate Sustainability Reporting Directive (CSRD) is correct? A. The objective of the CSRD is to introduce a standard classification of the economic activities based on their environmental impact. B. The objective of the CSRD is to replace the European Taxonomy. C. Under the CSRD, companies must report a fixed list of indicators that are listed in the European Sustainability Reporting Standards D. None of the other answers Solution D is the correct answer A is wrong because the objective of the CSRD is to foster and standardize sustainability reporting in EU B is wrong because the CSRD integrates the EU Taxonomy C is wrong because the CSRD requires to apply the double materiality principle to define which indicators should be reported