Financial Analysis Case Study - ABC LC, Derabel SA, and Perfilados SA

ABC LC Break-Even Point

The company ABC, L.C. manufactures some products with an average sales price of € 25/unit, with fixed annual costs of € 110,000. The average unit variable costs are € 5.

1.a) At what volume of production will the threshold of profitability be reached?

b) Assuming that annual sales are estimated at 20,000 units, being the distribution evenly over a year, on what date will the break-even point be reached?

c) What would be the sales value or turnover corresponding to the threshold of profitability?

2. The company Derabel, S.A. is considering buying a new machine for its production process. This project means an initial cost of € 200,000 and the machine is estimated to have a useful life of 5 years. The maximum productive capacity of the machine is 200,000 units per year. However, the first year it is expected that the activity will be 70% of the maximum installed capacity, reaching 100% from the second year.

During the first year, the unit sales price will be € 2.50, the unit variable cost € 1.50 and the fixed annual cost € 60,000, resulting in cumulative yearly increases of 4% in the price of the product sale, 3% on variable costs and 2% on fixed costs.

Also, it is assumed that:

• The company uses a linear depreciation system, and the residual value of the machine is € 25,000. Besides, the sale value of the machine at the end of its physical life will be € 30,000 that will be charged in cash.
• The nominal discount rate (kN) used by the company is 8% per year and constant for the planned period.
• The tax rate that taxes the benefits is 25%. Taxes are paid in the period following their accrual.
• All production is sold in the reference period.
• All income and expenses are charged and paid in cash.

With the above data, determine the Net Cash Flows after taxes of the project described above. Calculate the net absolute return.

3. An investment requires an initial disbursement of € 2,500,000 and the duration of the project is 3 years, in the first of which it generates a cash flow of € 1,500,000, in the second € 3,700,000 and the third € 4,100,000.

Calculate the Net Present Value of the investment, knowing that inflation is 3% cumulative annually and that the required profitability in the absence of inflation is 8%.

Calculate the actual internal rate of return of the previous investment.

4. We know the following data of the company Perfilados, S.A:

It bought and consumed 105,000 in raw materials for the manufacture of its product and, on average, maintained a stock level of them in the stock of € 9,250. Calculate the average storage period.

Calculate the average storage period.

The cost of its annual production is € 198,000, and the average value of the products under development is € 11,000. Calculate the average manufacturing period.

Taking into account that the company exclusively sold all its annual production and that the average value of its stock in finished goods warehouse was € 18,500, it calculates its average sales period.

Assuming that the company sold its products for an amount of € 290,000 and that the customers had on average a debt with the company of € 17,000, it calculates the average collection period.

With data obtained in the previous points it calculates the average period of economic maturity of Perfilados S.A.