Industrial Management

ME1003 and ME1314

Workbook
2018/2019

Second English edition*

(Printing 2, June 2018, Updated version)

Modern Industrial
Management

MAfSEtjGWALl ANN..\IER!IRAl-lT BCKAflLSOtl PHI STC RM

* Corresponds to the fourth Swedish edition

v20 I 8-06-24

Industrial Management
ME1003 and ME1314

Workbook
2018/2019

Second English edition*

(Printing 2, June 2018, Updated version)

Modern Industrial
Management

* Corresponds to the fourth Swedish edition

Preface

This workbook is intended for engineering students taking basic classes in Industrial Management. The aim is to
practice and learn fundamental concepts and methods from the quantitative parts of the topic, i.e. costing,
bookkeeping, accounting, and corporate finance. The workbook is intended to be used with the textbook
Engwall, et. al. "Modem Industrial Management", Studentlitteratur, 2018.

The exercises are drawn from different sources. Many come from old exams, others from old workbooks and
handouts at our department and some we have create ourselves. Consequently, there are many colleagues who
have helped us compiling these exercises, including Fredrik Gessler, Anna Jerbrant, Hakan Kullven, Fredrik
Lagergren, Per Storm, Paul Westin, Thomas Westin, and Margareta Wagstrom. Moreover, several students have
helped us evaluate, lay-out and proofread different versions of the exercises, including Julia Elf, Ayca Kaya,
Nora Larosei, Anton Persson, Thomas Nilsson, Hampus Rude, and Annika Engwall. Thanks to all of you!

All suggestions and ideas for improvements are more than welcome!

Stockholm, June 2018

Mats Engwall, Bo Karlson and Mohammad Akhbari

Changes between Workbook 2018/2019 and Workbook 2017/2018

No problems have been added or deleted. The order of the problems is the same. The update includes:
Changes of some definitions in section Financial analysis in the Formula sheet.
Corrections of minor errors in the text and/or solutions of the following problems:
1.6, I.II , l.21,2.3,2.4,2.14
Workbook 2018/2019 (English version) and Ovningskompendium 20I8/2019 (Swedish version) are identical.

2
Designations and definitions

Product Costing
Total cost= TC
Fixed Cost = FC
Total Variable Cost (for e.g. a product)= VC
Variable Cost/unit= VC/u
Total Variable Costs (during a period) = VC101

Volume= q
Real volume = qR
Normal volume= qN
Critical volume= qc

Direct material cost= dM

Material overhead = MO
Material overhead charge= MO-charge(%)
Direct labor cost= dL
Manufacturing overhead= MgO
Manufacturing overhead charge= MgO-charge (%)
Cost of Production = CoP
Administrative overhead= AO
Sales overhead= SO (sometimes SO and AO are collectively referred to as S&A)
Full cost = FC

Contribution Margin per unit = CM/u

Total Contribution Margin= TCM

Capital Investment Appraisal

Original investment= OI
Receipts = r
Payments = p
Annual cash receipt surplus (r-p) = a
Economic life = y
Residual value = RV
Cost of capital discount rate (interest rate) = i

Future value factor= FV[i %, y year]

Present value factor = PV[i %, y year]
Cumulative present value factor = CPV[i %, y year]
Annuity factor = ANN[i %, y year]

Financial analysis
Profit after financial revenues and costs= PAFRC
Profit after financial revenues = PAFR
Equity= E
Adjusted Equity = AE
Liabilities = L
Return on Equity = ROE
Return on Total Capital = ROT
Average interest on debts taken = RL

3
Contents

DESIGNATIONS AND DEFINITIONS 3

1. PRODUCT COSTING 9
CONCEPTS 9
1.1 JOHANNA LARGEKITCHEN AB 9
1.2 AXTON AB 9
COST VOLUME PROFIT ANALYSIS 10
1.3 SvARAB 10
1.4 SLAGVERKEN 10
1.5 SAKERHETEN AB 10
1.6 THE JEANS COMPANY 10
1.7 RbRFAST AB 11
1.8 FASTA RbRAB 11
1.9 SAMSONG AB 11
1.10 KROPPSFIXERING 11
1.11 GNOSJO MEKATRONIK 11
1.12 SVARV & SLIP AB 12
FULL COSTING 13
1.13 BASE PRODUCTION INTERNATIONAL 13
1.14 BASE PRODUCTION, ONE MORE TIME 13
1.15 KATRINEHOLMS VARMEPUMPAR 13
1.16 SAVOXAB 14
1.17 SPALKTYR AB 14
1.18 TOLKNARAB 14
1.19 SCHYSSTAALTANERAB 14
1.20 SJAVALER 15
1.21 TRASPECIALISTEN 15
CONTRIBUTION COSTING 15
1.22 REIMBURSEMENT AB 15
1.23 CHOICES AB 16
1.24 STEGUS AB 16
1.2 5 SNICKERIER AB 17
1.26 NARROW Focus 17
1.27 BEGRANS AB 17
1.28 STRINGENT AB 18
1.29 HABROVINK AB 18
1.30 BODYWORKS LTD 18
1.31 MACMANAGEMENT AB 19

2. CAPITAL INVESTMENT APPRAISAL 20

2.1 INTROVERT AB 20
2.2 NYINVEST AB 20
2.3 INVESTERINGSPROJ EKTET 20
2.4 MASKININKOPET 21
2.5 AUTO EL-MEKANO 21
2.6 FALSETTERNA 21
2.7 SUPPORTSVARV 22
2.8 WINGMUTTERN AB 22

4
r

2.9 LINNEA ELLER OSCAR 23

2.10 MARGINALEN AB 23
2.11 ALTERN AB 23
2.12 IN MY POCKET 24
2.13 RIGID AB 24
2.14 EXTRUDERN 25
2.15 SPACE SUPPLIERS 25

3. BOOKKEEPING AND ACCOUNTING 26

CONCEPTS 26
3.1 INCOME/EXPENDITURE, RECEIPT /PAYMENT, REVENUE/COST? 26
3.2 BASIC CONCEPTS 26
BOOKKEEPING 27
3.3 KEEPING BOOKS 27
3.4 AUTO EMISSION SOFTWARE 27
3.5 BbJEN LTD 28
3.6 KLASSES A.KERI 30
3. 7 PERF0RMANIA AB 31
3.8 LASSE'S FASHION STUDIO 33
3.9 ASPEKTEN 35
3.10 KALLQVIST CONSULTING LTD 37
3.11 SARA'S COURIER SERVICE AB 39
3.12 PACIOLI & Co 40
3.13 MEASURE GADGET LTD 42
3.14 INKLUMOMSSON AB 44
3.15 EXKLUMOMSSON AB 45

4. FINANCIAL STATEMENT AND ANALYSIS 46

FINANCIAL STATEMENTS 46
4.1 ALFABETICAAB 46
4.2 LASTMINUTE LTD 46
4.3 LAGERGREN & PARTNERS AB 47
APPROPRIATIONS AND DEPRECIATIONS 47
4.4 DEDUCTION AB 47
4.5 LowvALUE LTD 47
4.6 ORAB 48
4.7 DEPRECIATIONS AT TREBLA 48
4.8 OHM CONSUL TING AB 48
4.9 TAX ALLOCATIONS RESERVES 49
4.10 CONSULTME AB 49
FINANCIAL ANALYSIS 49
4.11 BALANSAKTEN AB 49
4.12 NYCKLAB so
4.13 SKAKIS AB so
4.14 DEBAB OCH FEBAB 51
4.15 ANALYSER AB 51
4.16 AB NYCKEL 52
4.17 FINA PRODUKTER AB 53
4.18 !OT INTERNATIONAL 53
4.19 PERSPEKTIVET AB 55
4.20 PROJEKTTEKNIK AB 56
4.21 INDUSTRIAL CORPORATION AB 57

5
5. CORPORATE FINANCE 58
CAPITAL REQUIREMENTS 58
5.1 DASAB 58
5.2 SNART AB 58
5.3 HON & HAN AB 58
5.4 KAPITALIS AB 59
5.5 KAPIT AB 59
5.6 RbJMIX AB 59
5. 7 FLODET AB 59
5.8 ENTENDER 60
5.9 ACHILLES LTD 60
CASH FLOW ANALYSIS 61
5.10 MEROVEN INC. 61
5.11 EUREKA LTD 61
5.12 THE SHORT-TERM PERSPECTIVE 62
5.13 THE LONG-TERM PERSPECTIVE 62
5.14 JMW AB 63
5.15 RODRIGES EL MEKANO 64
5.16 FEARLESS 65
DUPONT AND THE LEVERAGE EQUATION 66
5.17 MOMENTUM AB 66
5.18 FLY MUTTER 66
5.19 TORS TRUCK 66

BUDGETING 67
6.1 TRUE OR FALSE ABOUT BUDGETING 67
6.2 DUBBLE ENGINEERING AB 68
6.3 ELECTRON AB 70
6.4 BUCKLE UP AB 74

SOLUTIONS 77
1.1 JOHANNA LARGEKITCHEN AB 77
1.2 AXTON AB 77
1.3 SVARAB 78
1.4 SLAGVERKEN 78
1.5 SAKERHETEN AB 78
1.6 JEANSFORETAGET 78
1.7 RbRFAST AB 79
1.8 FASTA RbRAB 79
1.9 SAMSONG AB 79
1.10 KROPPSFIXERING 80
1.11 GNOSJO MEKATRONIK 81
1.12 SVARV & SLIP AB 82
1.13 BASE PRODUCTION INTERNATIONAL 83
1.14 BASE PRODUCTION, ONE MORE TIME 84
1.15 KATRINEHOLMS VARMEPUMPAR 85
1.16 SAVOXAB 85
1.17 SPALKTYR AB 86
1.18 TOLKNAR AB 86
1.19 SCHYSSTAALTANERAB 87
1.20 SJAVALER 87
1.21 TRASPECIALISTEN 88
1.22 REIMBURSEMENT AB 89

6
1.23 CHOICES AB 89
1.24 STEGUS AB 89
1.25 SNICKERIER AB 89
1.26 NARROW Focus 90
1.27 BEGRANSAB 90
1.28 STRINGENT AB 91
1.29 HABROVINKAB 91
1.30 BODYWORKS LTD 92
1.31 MACMANAGEMENT AB 93
2.1 INTROVERT AB 94
2.2 NYINVEST AB 95
2.3 INVESTERINGSPROJEKTET 96
2.4 MASKININKOPET 97
2.5 AUTO EL-MEKANO 98
2.6 FALSETTERNA 99
2.7 SUPPORTSVARV 100
2.8 WINGMUTTERN AB 101
2.9 LINNEA ELLER OSCAR 102
2.10 MARGINALEN AB 104
2.11 ALTERN AB 105
2.12 IN MY POCKET 106
2.13 RIGID AB 107
2.14 EXTRUDERN 110
2.15 SPACE SUPPLIERS 112
3.1 INCOME/EXPENDITURE, RECEIPT /PAYMENT, REVENUE/COST? 113
3.2 BASIC CONCEPTS 113
3.3 KEEPING BOOKS 114
3.4 AUTO EMISSION SOFTWARE 115
3 .5 BbJEN LTD 116
3.6 KLASS ES AKER! 117
3.7 PERFORMANIAAB 118
3.8 LASSE'S FASHION STUDIO 119
3.9 ASPEKTEN 120
3.10 KALLQVIST CONSULTING LTD 121
3.11 SARA'S COURIER SERVICES LTD 122
3.12 PACIOLI & Co LTD 123
3.13 MEASURE GADGET LTD 124
3.14 INKLUMOMSSON LTD 125
3.15 EXKLUMOMSSON LTD 126
4.1 ALFABETICAAB 127
4.2 LASTMINUTE LTD 127
4.3 LAGERGREN & PARTNERS AB 128
4.4 DEDUCTION AB 128
4.5 LOWVALUE LTD 129
4.6 ORAB 129
4.7 DEPRECIATIONS AT TREBLA 130
4.8 OHM CONSUL TING AB 131
4.9 TAX ALLOCATIONS RESERVES 131
4.lOCONSULTMEAB 132
4.11 BALANSAKTEN AB 133
4.12 NYCKLAB 133
4.13 SKAKIS AB 134
4.14 DEBAB AND FEBAB 134
4.15 ANALYSER 135

7
4.16 AB NYCKEL 136
4.17 FINA PRODUKTERAB 137
4.18 IOT INTERNATIONAL 138
4.19 PERSPEKTIVET AB 139
4.20 PROJEKTTEKNIKAB 140
4.21 INDUSTRIAL CORPORATION LTD 141
5.1 DASAB 143
5.2 SNART AB 143
5.3 HON & HAN AB 143
5.4 KAPITALIS AB 144
5.5 KAPIT AB 145
5.6 Ri:iJMIX AB 146
5. 7 FL0DET AB 147
5.8 ENTENDER 149
5.9 ACHILLES LTD 150
5.10 MEROVEN AB 151
5.11 EUREKA AB 152
5.12 THE SHORT-TERM PERSPECTIVE 153
5.13 THE LONG-TERM PERSPECTIVE 153
5.14 JMW AB 153
5.15 RODRIGES EL MEKANO 154
5.16 FEARLESS 155
5.17 MOMENTUM AB 156
5.18 FLY MUTTER 156
5.19 TORS TRUCK 158
6.1 TRUE OR FALSE ABOUT BUDGETING 159
6.2 DUBBLE ENGINEERING AB 159
6.3 ELECTRON AB 161
6.4 BUCKLE UP AB 164

FORMULA SHEET 168

INTEREST TABLES 170

8
 t. Product Costing

Concepts
1.1 Johanna LargeKitchen AB
Johanna LargeKitchen AB cooks and delivers meals (i.e. lunches, dinners etc.) to hospitals, schools, and
other institutions. The company recorded the following business transactions during a few months this year.
Indicate whether these transactions are expenditures/incomes, payments/receipts, or costs/revenues. Each
transaction can be more than one alternative!

a) Consumption of food supplies during a month. ~ ~Jc T

b) Purchase of a new oven, through invoice. ~ X Pt- IIJ DI l L) i2. f
c) Invoice sent for 982 meals delivered to one of the clients during the previous month. ' '. 'J ~ tj J ,; / I NC r;f "£
d) The company receives payment for the invoice from this client.
e) The company receives an invoice for food supplies that have been purchased. t )( i-'l t1 I::. 1 -1 1 /J l
f) A new slicer (i.e. machine to slice meat) purchased, in cash. ~EH-Pj tf\' /M.P,JT , t. xy E,1-J 0\1 'J~ £,,
g) Salary to employees. fA' /t-J' iN, I COS'
h) Payment of the invoice for the food supplies (see e). PA\/},/' f t-./7
i) Amortization on bank loan f/' 'U · t-J ·
j) Depreciation of kitchen equipment. CC) ST
k) Food supplies ordered. ~ y i>&,~JJ;;, 1' ' ) ~~f,

1.2 Axton AB
The company Axton Ltd records the following business transactions following the procurement of a batch of
components:

I Components ordered - March 16, year 3

-z Components delivered to and received by _Axton May 15, year 3
;_Invoice, SEK 60 000, sent from SJ.U:mlier - May 18, year 3
'1 Invoice, SEK 60 000, received by Axton c "'· . 'r" May 20, year 3
i:;" Invoice, SEK 60 000, recorded by Axton if , I ,I' May 21 , year 3

The payment for the batch is made in two installments. The first installment (SEK 30 000) is paid on July 31 ,
year 3. The second installmclit (SEK 30 000) is paid on January 31 , year 4. At the end of year 3, 65% of fue
components remain in inventory. The remainin compo nts are consumed during year 4. <z3 J
6so/o (1-0 .!J')'-=-) O.s<;,-x ~OI<- =
From Axton's point of view, determine when the expenditures, payments and costs occur, and to what amount.
qlf\l ;")~~r-
4,--¼ 9
'I I \ I

Gst
l f¾:! Co s-\ _ _ _ __ :-;, o. 6S-" Go:::. 3; K
1- I le
~r
9
 Cost Volume Profit Analysis
1.3 Svar AB
At Svar AB, the total costs for April when the production volume was 15 000 units, were SEK 55 000. In March,
when the production volume was 16 000 units, the total costs were SEK 57 000. As far as the company can see,
there were no other significant differences between the two months.

a) What are the variable costs per unit for the company?
b) What are the fixed costs for the company?

1.4 Slagverken
The following data have been collected over two months in the company Slagverken:

Month Production volume Total revenues Total costs

May 5 200 units SEK 390 000 SEK 340 000
June 7 400 units SEK 555 000 SEK 406 000

a) What are the variable costs per unit?

b) What are the fixed costs?
c) State some of the prerequisites (basic assumptions) for these calculations given the information
provided.

1.5 Sakerheten AB
Sakerheten AB produces a component for locks that the company sells to various lock manufacturers for SEK 30
per unit. The fixed costs amount to SEK 2 400 000 and the variable costs to SEK 22 per unit. At present, the
sales volume of the components is 540 000 units per year.

a) What is the break-even point (in volume)?

b) What is the safety margin in (in volume)?
c) What is the safety margin in (in percentage)?

1.6 The Jeans Company

A clothing company manufactures jeans. During the previous year, production capacity was fully utilized for this
garment. The following data can be collected from the accounting system :

Manufacturing and sales 150 000 units

Sales price SEK 500 per unit (c,<'~,= Fe+ vc;;_,H'J_ X:\h 1v'o\..(__i1_,t!-]
Ve Variable costs SEK 250 per unit
f C. Fixed costs SEK I 500 000 ::: I S-ou y ')-"- rz,;-a --~ .
::. f t ? ~ )
Calculate:
:: rr.'w/lJ., -<.q..=
a) The critical volume 60 () o ~ i
b) The critical revenue
c) The safety margin
d) The profit/loss
(t \(_ s~ l'V\&ro/)n= ('·:,t VOVJ.Mt - -~-\Lr,\';-~
f
i;=,(~t( G",5) =- TV'. -TC
Tc ' \

fC
10
 1.7 Rorfast AB
Rorfast AB only manufactures one type of product. In August the company had revenues of SEK 440 000, costs
of SEK 450 000, and a production volume of 48 000 units. In November, the revenues were SEK 510 000, the
costs SEK 441 000, and the production volume 46 200 units. No other significant changes in operations have
occurred between the two months.

a) What is the variable cost per unit?

b) What are the fixed costs?

1.8 Fasta Ror AB

The company Fasta Ror AB sells a product for SEK 20 per unit. In January, the total costs were SEK I 630 000,
and in February SEK 1930000. The production volume was 82 000 units in January and 102 000 units in
February. There were no other significant differences between the two periods.

a) What are the variable costs per unit?

b) What are the fixed costs?
c) What is the break-even point?
d) What is the safety margin, in number of units and in percentage, in February?

1.9 Samsong AB
When analyzing the company's cost structure, Samsong AB wants to distinguish between fixed costs and
variable costs. In January, the production volume was 10 000 units and the total costs were SEK 170 000, while
the revenues were SEK 240 000. In February, the volume was 8 000 units, the total costs SEK 160 000 and the
revenues SEK 220 000. There were no other significant differences between the two periods.

a) What are the variable costs per unit?

b) What are the fixed costs?
c) State some of the prerequisites that these calculations rest upon.
d) Suppose that the company reaches a production volume of 14 000 units in March. What are the total
costs for March?

1.10 Kroppsfixering
Kroppsfixering is a gym that offers weight training, group workout, cardio sessions, etc. The customers can
either buy an annual pass for SEK 5 000, which allows them an unlimited number of visits, or they can pay SEK
200 for each individual visit. The gym expects to sell I 000 annual passes for 20X7 (10% more than the year
before). The fixed costs are estimated to be SEK 8 200 000 in 20X7 and the variable costs are estimated to be
zero. To simplify: assume that the annual passes are valid for the calendar year 20X7.
Tip: Start by drawing a break-even chart that illustrates the relationship between costs, revenues, and volume
(i.e. number of visits in addition to visits by annual pass holders).

a) What is the critical volume (i.e. number of visits in addition to visits by annual pass holders)?
L b) How many visits (in addition to visits by annual pass holders) does the gym need to attract during 20X7
in order to make an annual profit of SEK 400 000?
c) Assume that only 800 annual passes are sold and the gym gets 20 000 visits (in addition to those who
bought annual passes) in 20X7. What will the annual profit or loss (in SEK) for 20X7 be?
d) Is it reasonable to assume that the variable costs of a gym visit are zero? Motivate the answer.

1.11 Gnosjo mekatronik

The small manufacturing company Gnosjo mekatronik manufactures a product that is sold for SEK 40 per unit.
The variable manufacturing costs are SEK 30 per unit. The other manufacturing costs are fixed within specific

11
ranges. At annual production volumes ofup to 130 000 units, the fixed manufacturing costs are SEK 370 000 per
year. At annual production volumes between 130 00 I and 210 000, the fixed manufacturing costs increase to
SEK 570 000 per year. At annual production volumes of 210 00 I or more, the fixed manufacturing costs
increase even more, now to SEK 770 000 per year. The reason is that the company needs to use two additional
production facilities in order to manage large volumes. The maximum production capacity of the company is
350 000 units per year.

Some of the costs for sales and administration are independent of the production volume and amounts to SEK
260 000 annually. However, the company knows that the sales volume is affected by how much advertising that
is done. It is estimated that the sales volume will be 130 000 units annually without extra advertising (i.e. in
addition to what is included in the sales and administrative overhead costs). In order to reach a sales volume
exceeding 130 000 units per year, it is estimated that SEK 140 000 per year in additional advertising is needed.
In order to reach a sales volume exceeding 280 000 units per year, it is estimated that an extra SEK 200 000 per
year needs to be spent on advertising. In addition, the sales force receives a commission of 10 % of the revenues.

a) What production volume (=sales volume) is needed in order for the company to make a profit of SEK
320 000 per year?
b) What sales price is needed for the company to make a profit of SEK 2 050 000 at a production volume
(sales volume) of 310 000 units? All other conditions unchanged.

1.12 Svarv & Slip AB

The production engineers at Svarv & Slip AB are busy planning the roll out of a new product. The product can
be manufactured either in a manual machine, in a semi-automatic machine, or in a fully automatic machine.
These machines have different fixed and variable costs. Capacity and manufacturing costs are as follow:

Manual Semi-Automatic Fully automatic

Normal capacity, units per hour 800 I 200 2 400
Fixed costs per hour (SEK) 600 l 200 2 000
Variable costs at normal capacity (SEK per unit) 4.00 2.00 0.40

Variable costs at production volumes exceeding normal capacity:

Between O and 200 units over normal capacity (SEK per unit) 8.00 4.00 na
Between 20 l and 400 units over normal capacity (SEK per unit) 12.00 6.00 na

a) Calculate the cost per unit for the three machines (manual, semi-automatic, fully automatic).
b) At which production volume per hour is each of the three machines most economical (i .e. gives the
lowest cost per unit)?

12
Full Costing
1.13 Base Production International
Base Production International manufactures a product with the following costs per unit (SEK):

Direct material (dM): 200

Materials overhead (MO): 50
Direct labor (dL): 300
Manufacturing overhead (MgO): 330

The charge for Administrative overhead is IO % and the charge for Sales overhead is 30 %.

a) Calculate the Cost of Production (CoP) for the product.

b) Calculate the Materials Overhead Charge and the Manufacturing Overhead Charge.
c) Calculate the Full Cost for the product.

1.14 Base Production, one more time

The same company will begin manufacturing an additional product. Calculate the omitted items below (in SEK),
by using the overhead charges calculated above:

Direct material (dM) 357

Material overhead (MO) ?
Direct labor (dL) 411
Manufacturing overhead (MgO) ?
Cost of production (CoP) ?
AO ?
so ?
Full cost ?
Sales price (including 20 % profit charge) ?

1.15 Katrineholms varmepumpar

A company in the small town Katrineholm, Katrineholms vannepumpar, has developed a heat pump that is
specially adapted for small modular houses. Last year, the sales volumes were satisfactory; 480 units were sold
and installed. The costs (in SEK) for producing and installing this volume were:

Direct material 2 400 000

Direct labor 4 800 000
Manufacturing overhead 4 800 000
Sales overhead l 200 000

Sales amounted to SEK 14 400 000 during last year. However, during the current year the company estimates
that the sales volume will decrease and that sales prices might have to be decreased. The current estimate
indicates an annual sales volume of 320 heat pumps. An effort to analyze the cost structure has been made.
During last year, approximately 50 % of the manufacturing overhead and 80 % of the sales overhead, were fixed
costs. The fixed costs are assumed to remain unchanged during the current year.

Calculate the full cost per unit for this heat pump during the last year and the current year, and highlight any
change in profit per unit this year compared to the previous year.

13
1.16 Savox AB
Savox AB performs paint jobs for various manufacturing companies. The budget for 20X3 includes the
following items: direct material costs: SEK 140 000; direct labor cost: SEK 40 000, manufacturing overhead:
SEK 88 000, administrative overhead: SEK 44 400, sales overhead: SEK 74 000, and materials overhead: SEK
28 000. The company makes a 10 % profit charge on the full cost.

The company has just received an order for a paint job from an important client. It is estimated that paint for
SEK 5 000 and 10 labor hours will be needed to paint and deliver the components that the client has
manufactured. The hourly labor cost is SEK 600.

a) What is the total full cost for the company (according to the budget)?
b) What overhead charges should the company use during the year?
c) What price should be offered to the client for this specific order?
d) If the company wants to improve its costing model, which part would you suggest that they focus on?

1.17 Spalktyr AB
Spalktyr AB produces different kinds of spalktyr. For the current year, the company uses the following overhead
charges in the product costing model: materials overhead 25 %, manufacturing overhead 40 %, administrative
overhead 20 %, and sales overhead 30 %. The company has now received an order for I00 units of the S43 type
of spalktyr. Material for SEK 480 is used in each of these S43. It is estimated that direct labor is 10 hours, at a
cost of SEK 200 per hour. In order to start producing this order, machine set-up is necessary and this is estimated
to cost SEK 10 000. Moreover, a bonus of SEK 20 000 has to be paid to the sales agent for this order.

a) How and when do companies calculate the types of overhead charges that are used in this costing
method?
b) Calculate the full cost for the order.

1.18 Tolknar AB
The company Tolknar AB produces, among other products, model A43. The company has received an order for
3 000 units of these Tolknar A43 . Each of these units uses material for SEK 50 and 16 labor minutes; each
minute at a cost of SEK 4. To produce this order, a machine set-up is required at an estimated cost of SEK
56 000. Also, a sales bonus of SEK 80 000 has to be paid to an external sales representative.

The company uses a charge for manufacturing overheads of l 00 %, a charge for administrative overheads of 30
%, a charge for materials overhead of 40 %, and a charge for sales overhead of 40 %.

a) Calculate the full cost for this order, in total and per unit of A43.
b) Manufacturing overheads is rather high, 100 %. What problems could this cause?

1.19 Schyssta altaner AB

Schyssta altaner AB produces custom made patios on order. For this year they have budgeted the following
costs: direct material SEK 2 400 000, administrative overhead SEK I 849 400, direct labor SEK l 400 000,
materials overhead SEK l 008 000, sales overhead SEK 528 400, and manufacturing overhead SEK 476 000.
The company has received an order for a patio for a single-family home. It is estimated that the cost for direct
material will be SEK 42 000 and the cost for direct labor will be SEK IO 000 for this order.

a) What is the total cost of production for the year according to budget?
b) What is the total full cost for the year according to the budget?
c) What overhead charges are needed to cover all the indirect costs during the year? Calculate all
appropriate charges.
d) What is the full cost for this particular order?
e) What is the specific cost for this particular order?

14
1.20 Sjavaler
The company where you work produces sjaval, a product which is tailored for different customers and orders.
The company has, in its budgeting process, calculated the following overhead charges:

• for sales overhead 20 %

• for administrative overhead 25 %
• for materials overhead 40 %
• for manufacturing overhead 80 %

The company has just received an order for 20 sjaval from one of its smaller customers. The company expects
that 2 hours of direct labor (at an hourly rate of SEK 250) is needed per sjaval, and that each unit will use
material for SEK I 750. Setting up the production for this order is expected to cost SEK 13 000. The sales
commission to the sellers for this order is expected to be SEK 5 000. The customer is willing to pay SEK
I 00 000 for the order.

a) Calculate the full cost for this order.

b) If you were to change one (and only one) component in the product costing model of the company,
which would that be? How would you like to change it?
c) Given the information that we have, calculate the contribution margin for the order.

1.21 Traspecialisten
Traspecialisten AB produces desks and currently offers two models, the exclusive "Boss" and the basic "Home".
The company uses a full costing model based on the data below.

Home Boss
Estimated production volume per year 3 000 units I 200 units
Labor per unit 3 hours 4 hours
Labor cost per hour SEK 250 SEK 250
Estimated material consumption per unit, wood 8 meter 10 meter
Price per meter, wood SEK 25 SEK25

The following data is collected from the company's quarterly report:

Manufacturing overhead is SEK 350 000 per quarter (rent for facilities, depreciation, maintenance of production
equipment, electricity, heating etc.). Administrative overhead is SEK 150 000 per quarter. Sales overhead (salary
to a sales person and travel expenses) amounts to SEK 250 000 per quarter.

a) Calculate the full cost for each model. Propose and motivate which overhead charges that should be
used. What price should Traspecialisten AB charge for Home and Boss if a 20 % profit charge is used?
b) A month after the cost calculations in a) the company receives an inquiry from a customer for 100 units
of Home at a price of SEK I 500 per unit. Traspecialisten has available capacity in the production plant.
However, the company will have to pay the machine operators extra remuneration for overtime. The
labor cost per hour will thus increase to SEK 300 per hour for this order. Should the company accept
this order at the price offered? Make necessary calculations and discuss the question.

Contribution Costing
1.22 Reimbursement AB

We have the following infonnation about the company Reimbursement AB· s main product:

15
 Variable costs SEK 17 per unit
Fixed costs SEK 800 000
Sales price SEK 42 per unit
Sales volume 96 000 units

Calculate the total contribution margin and the contribution margin per unit for producing this product in this
volume.

1.23 Choices AB
Choices AB provides the following data (in SEK) for nine customer orders (enquiry A-I). The company has
enough capacity in its production plant to accept all nine orders.

A B C D E F G H I
Price 120 000 80 000 130 000 60 000 90 000 85 000 60 000 7 000 92 000
Specific cost 130 000 50 000 80 000 40 000 70 000 85 000 20 000 4 000 45 000
Full cost 160 000 60 000 100 000 65 000 100 000 130 000 25 000 5 000 65 000

a) Which of these customer orders should the company accept? Why?

b) Assume that the company doesn't have enough production capacity for all nine orders. What more
information does the company need in order to decide what sales orders to accept?

1.24 Stegus AB
The staff at Stegus AB consists of three consultants who work independently on individual assignments. They
share an office and an assistant who works with administration and bookkeeping. During a period, the company
showed the following financial data (in SEK):

Consultant I Consultant 2 Consultant 3

Specific revenues 150 000 200 000 380 000
Specific costs 175 000 150 000 200 000

Calculate the profit for the period. The common costs are SEK 100 000.

16
1.25 Snickerier AB
A company in the carpentry industry, Snickerier AB, is organized in products, product groups, and departments.
This makes it possible to follow up revenues and costs for individual products as well as for product groups. The
following numbers are available for a certain period (revenues and costs i.n SEK).

Product group Chairs Product group Tables

Chair A Chair Skane Table A Table Edvard Persson
Specific revenues (SEK) l 500 l 800 5 800 7 500
Specific costs (SEK) 800 900 3 000 4 000
Volume 137 98 35 20

The specific costs for product group "Chairs" were SEK 76 900 for the period while the specific costs for
product group "Tables" were SEK 73 200 during a certain period. The specific costs for the whole department
("Chairs and tables") were SEK 68 400 for the period.

Use the step costing method to calculate the contribution margin for the department "Chairs and tables".

1.26 Narrow Focus

The company Narrow Focus plans to start producing a product called Tranger. There are two types ofTranger:
Type A and Type B. The (variable) specific costs arc SEK 60 per unit for Type A and SEK 110 per unit for Type
B. The company' s total fixed costs are estimated to SEK 30 000. Type A is sold for SEK 150 per unit and Type
B is sold for SEK 210 per unit.

For various reasons, only I 500 kg of the material used in both Type A and Type Bis currently available on the
market. Type A needs 2.0 kg material per unit and Type B needs 2.5 kg material per unit.

How many units of Type A and Type B should the company produce?

1.27 Begrans AB
Begrans AB produces two products: Beg and Rans. The price for Beg is SEK 2 120 per unit. The specific costs
are SEK 840, which includes the costs for four hours of production. The common costs for Beg are SEK l 000.
The price for Rans is SEK 800 per unit. The specific costs are SEK 450, which includes costs for one hour of
production. The common costs for Rans are SEK I 00. Currently, the company has a shortage of staff in
manufacturing. Currently only 2 000 hours of labor are available in the production plant during the coming
period.

a) Which of the two products should the company produce and at what volume?
b) Suppose that there is no longer a shortage in the workforce. The company estimates that the maximum
sales volume is either 3 000 Beg or 3 000 Rans. Which of the two products should the company
produce? Assume that they can only produce one of the two products.
c) In certain cases, a combination of the two products gives the optimal production mix (i.e. not as in the
example above where the company only wants to produce one of the two. When can this occur?

17
1.28 Stringent AB
Stringent AB manufactures two types of a product used for preventing people from slipping in bathrooms and
laundry rooms, "Bathroom halkis" and "Laundry halkis". Through extensive scientific testing the company has
concluded that both products work equally well in both bathrooms and laundry rooms. The company has
therefore decided to produce only one type of the product and to market it under the brand "Universal halkis".
The question now is; which of the two types should the company produce? It is estimated that Universal halkis
can be produced at the same cost and sold at the same pI"ice as Bathrnom halkis and Laundry halkis are produced
and sold today.

Bathroom halkis is sold for SEK 340 per unit and Laundry halkis for SEK 180. The specific cost is SEK 220 per
Bathroom halkis and SEK 120 per Laundry halkis. Unfortunately, only 8 000 kg of the special rubber material
used in both types is available. Each Bathroom halkis needs 1.2 kg rubber and each Laundry halkis needs 0.5 kg
rubber.

Which of the two types, Bathroom halkis or Laundry halkis, should the company produce and market under the
brand Universal halkis?

1.29 HabroVink AB
"How many Habro should we produce, and how many Vink?", the CEO of the company HabroVink asks. "No
problem, I'll have an answer later this afternoon", you answer. You remember that there are two different ways
to solve this kind of problem and since you want to show your boss how smart you are, you decide to present
both solutions.

The management accounting systems provides the data you need and you can fairly easily estimate that the
specific costs for producing Habro are SEK 300 per unit and the specific costs for producing Vink are SEK 220
per unit. The price is SEK I 000 per Habro and SEK 800 per Vink. You estimate the total common cost of the
company to SEK 2 500 000 per year. What limits the company's production capacity is the availability of
material. Only 29 000 kg of material is available per year. Each Habro needs 2.00 kg and each Vink needs 1.45
kg.

How many units should the company manufacture ofHabro and Vink respectively? Show both ways to solve the
problem.

1.30 Bodyworks Ltd

Bodyworks Ltd is a first tier supplier of two components for exclusive dolls: arms and legs. The following
information is available about these components, which are sold to different doll manufacturers:

Arms legs
Sales price (SEK per unit) 200 140
Variable costs (SEK per unit) 120 100
Fixed costs (SEK per unit) 40 40
Machine time (minutes per unit) 10 40
Material used (kg per unit) 2 0.5

a) Which of the two components should they produce if there are only 500 machine hours available, but
sufficient amounts of all other resources?
b) Which of the two products should they produce if there is only 1 000 kg of material available, but
sufficient amounts of all other resources?
c) If the company can only sell a maximum of 1 000 Arms and a maximum of 1 000 Legs, how many of
the two products should they produce if there is only 1 000 kg of material available, but sufficient
amounts of all other resources?
d) The answers to a) - c) can be calculated numerically. But are there other circumstances that probably
should be taken into account when taking these decisions?

18
 1.31 MacManagement AB
MacManagement AB is a management consultant specialized in implementing US management concepts in
Swedish companies. Even though this is an industry with relatively good margins, the company needs to be
financially careful. How much to bill for a consulting hour delivered to a client has been discussed for quite
some time. A newly employed consultant commented that it is not possible to know what price to bill without
knowing the costs of delivering a consulting hour in terms of salaries, etc. So the junior consultant was asked by
her boss to find out precisely that.

Of all the data she wanted she was only able to find the following:

MacManagement has a staff of 15 employees, 11 of which are consultants and 4 are administrators. Total costs
for the company amounted to SEK 22.0 million last year. All consultants have the same salary, SEK 50 000 per
month (excl. social costs and vacation allowance which amounts 40 + 10 = 50 % of the salary). The salary of the
administrative staff is SEK 25 000 (excl. similar social costs) per month and person.

The junior consultant knows that on average she spends about 20 % of her time on sales activities or
administrative tasks that can not be billed to a client. She assumes that the same is true for her colleagues. She
also assumes 8 hours per working day, 225 working days per year, 4.2 weeks per months and 40 hours per
working week.

a) Help the junior consultant to estimate the costs for the company to deliver a consulting hour. What is
the lowest price that MacManagement should bill its clients?
b) After a couple of days her boss comes back to ask for her opinion on a somewhat difficult matter. "We
have received an inquiry about installation of our latest information management system. The problem
is that the client is only willing to pay SEK 900 per consulting hour. The problem is that all consultants
are busy on other assignments. I have talked to a couple of them and they might be able to take this
assignment as well, but we would have to pay them I 00 % extra for overtime compensation. The
administrative staff also needs to work as much overtime as the consultants to accomplish this
assignment. What should we do?"
Help the junior consultant to answer the boss ' question whether the company should accept this order at
the price SEK 900 per consulting hour.
c) Some time later the boss comes back with a similar question. "A client wants us to make an
investigation of their management structure. Since several of our assignments have been completed,
about 30 % of our workforce is available. The problem is that this client has heard that we deliver
assignments for SEK 900 per consulting hour and is therefore not willing to pay more than that. What
should we do?"
Once again, help the junior consultant to investigate if this assignment should be accepted at SEK 900
per consulting hour.

... 19
2. Capital Investment Appraisal

2.1 Introvert AB
Introvert AB produces introverts. The company is investigating whether to start a temporary production plant to
manufacture expandable introverts for a particular customer. The investment needed is estimated to SEK 1 000
000. The production plant will be used for eight years and will give annual receipts of SEK 500 000 and annual
payments of SEK 250 000. After eight years, the plant must be dismantled and the site restored, which will result
in an additional payment of SEK 1 000 000. The company uses an 8 % cost of capital interest rate for this type of
investment. Calculate:

a) The investment's net present value. Is the investment profitable according to this method?
b) The investment's annuity. Is the investment profitable according to this method?
c) The investment's payback time.
d) The investment's internal rate of return (IRR).
Tip: Start with summarizing and then comparing all receipts and payments.

2.2 Nyinvest AB
The company Nyinvest AB plans to invest in a new machine. This machine requires an initial investment of SEK
500 000 and is estimated to have an economic life of 10 years. The company plans to sell products produced in
the machine for SEK 200 000 per year and estimates that this will result in annual payments of SEK 100 000.
The machine is depreciated with SEK 50000 per year in the books. After ten years, the machine has a negative
residual value, due to costs to dismantle and scrap the machine, of SEK 200 000.

The company uses 8 % as cost of capital interest rate or a demand on payback time of 3 years for this type of
investment.

a) Calculate the net present value of the investment. Should the company invest in the machine?
b) Calculate the payback time of the investment. Should the company invest in the machine?
c) Calculate the internal rate ofretum (IRR) of the investment. Should the company invest in the
machine?

2.3 lnvesteringsprojektet
The table below summarizes some data from an investment project.

Original investment SEK 2 370 000

Annual payment surplus SEK 545 000
The residual value SEK 150 000
Economic life 5 years
Cost of capital interest rate 5%

Calculate the profitability of this investment using the:

a) Net Present Value method

b) Internal Rate of Return method
c) Annuity method
d) Payback method (without taking interest into account)

20
 2.4 Maskininkopet
A company plans to purchase a new machine in order to start producing a new product. The cost of capital
interest rate used by this company for this type of investment is l 5 % and it is estimated that the machine has an
economic life of 8 years. The cash-flow consequences of the investments are:

0 I Original investment SEK 140 000

r Annual payments for operations and maintenance SEK 70 000
11-r-tr.
' .__ Annual receipts SEK 100 000
pv Residual value after 8 years SEK 25 000

Calculate: pv
a) T h e ~ e of the annual receipts and payments during the first 8 years. CPVx a
b) The net present value of all the payments during the first 8 years.
c) The future value of all the payments during the first 8 years. N rl/ "- t=V
d) The annuity of all the payments during the first 8 years. ~J PV -,. A_N N
e) The payback time. 0 I /t>-
t) The net present ratio. N i'V / oI
g) The annuity ratio. ~N N /o I
h) An approximate value of the internal rate of return (IRR). I) yJ; N-PI/ -tv 7-aJ.ro
1.J •{ Ni'\/> 0 ,~e_ >; (iVtk..u•
1 r~ /c,11\+o/ tv.J-1,J
2.5 Auto EI-Mekano 3) iv.1$lM--h°l Nr\J<.O

The company Auto EL-Mekano is investigating weather to invest in new machinery for one of their production
plants. The price for the new machine is SEK 4QQ_QQ,Q (including shipping). Installation and training is expected
to amount to SEK 2_§_.4ili). Experience shows that some downtime can be expected during the early production
runs. This downtime is estimated to cost SEK ~O 000. The following savings are expected:
dur<,{;...f-.,· r > ~ f 1; \VL• l..,. 1 O'; Yoouoo -1,,b'ioo -1-u ooo::;:
Mate~ ls cost will decrease ' itt SEK 13 280, labor costs with SEK 51 200, and other operating costs with SEK
~Economic life of the new mac~estimated to 8 years after which the company estimates that it can
be sold for SEK 48 000. The company uses a 12 % cost of capital interest rate for investments in the production
plan.

Help the company to make a financial assessment of this investment using the:

a) Net present value method

b) Annuity method
c) Internal rate of return method
d) Payback method (also, discuss what this result means)

2.6 Falsetterna
Falsetterna AB produces high plastic towers, and is now planning to produce these towers in a new size. To do
this, a new machine is needed which involves an investment of SEK 620 000, including the machine itself for
SEK 570 000 and transportation and installation for SEK 50 000. Transportation and installation is done by a
different company than the company selling the machine. The company will produce the new tower for 5 years.
After 5 years it is estimated that the machine can be sold for SEK 10 000, but unfortunately, uninstalling and
removing it will cost SEK 60 000. When sold, it is estimated that the buyer will be able to use it for another 3
year before it needs to be scrapped.

The yearly cash receipts are estimated to SEK 320 000 year 1 to 4, but only SEK 150 000 for year 5 since the
price probably needs to be reduced in order to avoid leftover products in stock. The yearly cash payments are
estimated to SEK 80 000 all five years. The company demands a payback time of less than 3 years on
investments of this kind. The cost of capital interest rate is set to 12 %.

a) What is the net present value of this investment? Should the company invest in the machine?
b) What is the annuity of the investment? Should the company invest in the machine?
c) What is the payback time of the investment? Should the company invest in the machine?

21
 d) Suppose that the company demands 8 % internal rate of return. In that case, should the company invest
in the machine?

2.7 Supportsvarv
A company needs a new so called capstan lathe (Sw: supportsvarv) and is investigating weather to buy or lease
such a machine. The price for a new capstan lathe is SEK 840 000 and the estimated economic life is l 0 years.
After 10 years the company estimates that it can be sold for SEK 150 000. As an alternative, the machine can be
leased for l O years. After IO years the machine is returned to the owner at no extra cost. The license fee for this
option is SEK 12 000 per month. The company uses a cost of capital interest rate of l 0 %.

What alternative should be chosen?

2.8 WingMuttern AB
The airline WingMuttern AB is currently investigating if one of their propeller aircrafts should be replaced with
a jet. The original investment for a new jet aircraft is SEK 3 400 000 and will lead to a positive annual payment
surplus of SEK I 000 000 for five years, while the old propeller aircraft will lead to a positive annual payment
surplus of only SEK I 00 000 for five years. The residual value of the old propeller aircraft (now as well as in
five years) is zero. The residual value of the jet aircraft is estimated to SEK 500 000 in 5 years.

Should the company invest in the jet aircraft or should they keep the old propeller aircraft for another 5 years?
The company's cost of capital interest rate is l 0 % for this type of investment.

22
2.9 Linnea eller Oscar
A company chooses between two investment alternatives "Linnea" and "Oscar":

Linnea Oscar
Original investment (SEK) 45 000 l 10 000
Annual cash surplus (year 1- 10, SEK) 12 000 20 000
Residual value (SEK) 0 0

a) Which alternative should the company choose if time preference is zero, i.e. if the cost of capital
interest rate is O % ?
b) Which alternative should the company choose ifthe cost of capital interest rate is 15 %?
c) Calculate the interest rate at which the alternatives are equally profitable.
d) Calculate an approximate value of the internal rate of return (IRR) for both alternatives.

2.10 Marginalen AB
The company Marginal en AB needs to replace a broken down machine in one of their production plants. The
company has identified two different alternatives with the following estimated payment consequences:

Machine A Machine B
Original investment (SEK) 100 000 140 000
Annual receipts (SEK) 80 000 90 000
Annual payments (SEK) 30 000 40 000
Residual value (SEK) 5 000 15 000
Economic life (years) 6 IO

a) Which investment is most advantageous?

b) Which alternatvie should be chosen according to the payback method?

2.11 Altern AB
Altern AB needs to invest in a new lathe (i.e. a machine), which will replace an earlier machine that is used in a
production process that is planned to be going on in the foreseeable future. The receipts from the operations
where the lathe will be used are SEK 420 000 per year. The company uses a cost of capital interest rate of 7 %
for this type of investment. The company chooses between two different lathes:

L ~ involves an original investment of SEK I 050 000 and it has an estimated economic life of 7
years after which it can be sold for SEK 150 000. It will lead to payments for wages of SEK 150 000
per year and for material and energy of SEK 50 000 per year.
Ljl.the-1;3 involves an original investment of SEK I 430 000 and it has an estimated economic life o.f.2.
years after which it can be sold for SEK 220 000. It will lead to payments for wages of SEK I 00 000
per year and for material and energy of SEK 40 000 per year.

a) What is the net present value of lathe A?

b) What is the annuity of lathe A?
c) What is the net present value of lathe B?
d) What is the annuity of lathe B?
e) What alternative should the company choose? Also, indicate if it is the net present value, the annuity, or
both of them that is relevant in making this decision.

23
2.12 In My Pocket
In my Pocket produces paperbacks in an old machine that needs to be replaced or renovated. The production
manager wants to invest in a new machine with better operating characteristics which means less waste during
production.

Costs for repair and maintenance of the old machine amount to SEK 50 000 per year. Other operating costs,
including waste, amount to SEK 70 oof per year. Costs for repair and maintenance of the new machine are
estimated to SEK 25 QOO per year while other operating costs, including waste, are estimated to SEK 35 00 per
year. Procurement an& installation of the new machine will cost SEK 850 000. Its economic life is estimated to
i
10 years after which it can be sold for SEK 150 000. \J OI
~
As an alternative to investing in a new machine, the company may renovate the old machine for SEK 350 000.
After renovation, it is estimated that it can be used for another 5 years. The company uses a cost for capital
interest rate of 1,5 % for this type of investment.
I
Which alternative should the company choose?

2.13 Rigid AB
The company Rigid AB has an investment policy specifying that an investment proposal needs to achieve a
payback time of no more than 3 years in order to be considered profitable enough to get a go-ahead. This means
that the annual receipt surplus (or annual decrease in payments) needs to be large enough for the original
investment to be recuperated in 3 years.

The company has identified two options to increase the production capacity of a product with high customer
demand.

Machine A Machine B
Original investment (SEK) 100 000 200 000
Economic life (years) 6 10
Receipts per year (SEK) 70 000 100 000
Costs for operations per year (SEK) 20 000 17 000
Service and maintenance per year (SEK) 10 000 10 000
Residual value (SEK) 0 20 000

N.B.: In option B, the machine supplier covers the cost for service and maintenance during the first year.

a) Do these alternatives fulfill the company's investment criteria?

b) After a quick review of the numbers, the company's chief financial officer asks you to rank the two
alternatives. The company uses a cost of capital interest rate of 20 % for this type of investment.

24
2.14 Extrudern
A company producing plastic components through die-casting has decided to invest in an additional machine
called extruder. The company can purchase or lease the extruder. A leasing company offers two leasing options.
The economic life of the extruder is estimated to 7 years and the company uses a cost of capital interest rate of
15 % for this type of investment. There are three options:

Option I: Purchase the extruder

Original investment: SEK I 700 000
Costs for operations per year: SEK 80 000
Service and maintenance per year: SEK 20 000
Residual value: SEK 400 000

Alternative JI: Rent the extruder

Rent per year: SEK 370 000
Costs for operations per year: SEK 80 000
Service and maintenance agreement per year: SEK 50 000

Alternative 111: Rent/Purchase the extruder

Year l - 3:
Rent per year: SEK 370 000
Costs for operations per year: SEK 80 000
Service and maintenance agreement per year: SEK 50 000
Year 4 - 7:
Original investment: SEK 1400000
Costs for operations per year: SEK 80 000
Service and maintenance per year: SEK 20 000
Residual value: SEK 400 000

The difference between alternative II and III is that the company in alternative II rents the extruder for seven
years, whereas alternative III involves renting the extruder for three years and then purchasing it. During the
rental periods, a service and maintenance agreement is signed with the leasing company.

a) Which alternative should the company choose?

b) Which residual value of the extruder makes alternative I (purchase) equal to alternative II (rent)?

2.15 Space Suppliers

The company Space Suppliers manufactures satellite components and is planning to invest in a new 3D printer in
order to increase production capacity. The receipt surplus of this investment is estimated to SEK 200 000 per
year during the printer' s 10 year economic life. The price of the 3D printer is SEK l 000 000 (purchase and
installation) and the company uses a cost of capital interest rate of 18 % for this type of investment. It is
estimated that the printer can be sold for SEK 150 000 after IO years.

a) Is this investment proposal profitable?

The company perceives that the financial consequences of the proposed investment are somewhat uncertain and
wants to know how sensitive to changes in the input data the result is. Investigate how the profitability is
affected by changes in the:

b) Annual receipt surplus (i.e. calculate what value of this variable that gives a net present value that
equals zero, ceteris paribus).
c) Economic life (i.e. calculate what value of this variable that gives a net present value that equals zero,
ceteris paribus).
d) Cost of capital interest rate (i .e. calculate what value of this variable that gives a net present value that
equals zero, ceteris paribus).

25
3. Bookkeeping and accounting

Concepts
3.1 Income/Expenditure, Receipt/Payment, Revenue/Cost?
Indicate for each of the following items if it corresponds to an income, an expenditure, a receipt, a payment, a
revenue, or a cost (each item may be one, two or three of these).

a) Raw material is purchased, in cash.

b) Raw material is purchased, on credit i.e. through an invoice.
c) The raw material in b) is paid.
d) The raw material in b) and c) is used in the manufacturing and delivery of the company's products
e) The company pays monthly rent for office space for March in advance, paid _in cash.
f) A machine is purchased, in cash.
g) A machine is depreciated with its annual depreciation.
h) The company amortizes on a loan.
i) An invoice for work performed is sent to a customer.
j) The company is paid for the invoice in i).
k) The monthly salary for September is paid to the company's employees.
1) Defective raw material is discarded (scrapped) after the annual physical count of the inventory.
m) Recording of additional commissions to sales staff who exceeded their sales budget for September.
n) Payment of the additional commissions in m).
o) Sale of a machine that is no longer used in manufacturing. The transaction has been invoiced and the
machine has been delivered to the customer.
p) Real estate tax for the previous financial year is paid.

3.2 Basic concepts

[ndicate with a D (debit) or a C (credit), the type of accounts that are affected by the fo llowing business
transactions. (A for Assets, LIE for Liabilities & Equity, I for Income, and E for Expenditures)

A L/E I E
a) A loan is taken, received in cash. !\ p C,

b) Fuel is purchased, paid in cash. (S..

c) A consultancy service purchased, paid in cash. ·
d) A consultancy service sold, paid in cash.
e) Amortization on a loan.
f) Interest on a loan, paid in cash.
g) A machine is purchased, paid in cash.
h) A car is purchased, paid in cash.
i) Rent for factory premises, paid in cash.
j) The owner of a company deposits cash as start-up capital.
k) Salary to employees, paid in cash. E:.
1) Transfer of money between two of the company's bank accounts.
m) Insurance premium is paid, from the bank account.
n) The bank pays interest for the past year.

26
 Bookkeeping
3.3 Keeping books
For each of the following transactions, specify which account that is to be debited and which account that is to
be credited.

a) The owners deposit SEK 100 000 in the company's bank account, as start-up capital.
b) SEK 50 000 is withdrawn from the bank account and deposited in the cash box.
c) Material for SEK 10 000 purchased, payment from the bank account, and placed in inventory.
d) Salaries are paid, from the bank account, SEK 5 000.
e) Electricity bill is paid, in cash, SEK 2 000.
t) Material for SEK 30 000 is purchased, through invoice, and placed in inventory.
g) Products are sold for SEK 40 000, payment to the bank account.
h) Products are sold for SEK 20 000, through invoice.
i) The material in t) is paid, in cash.
j) The customer pays the products in h), payment to the bank account.

3.4 Auto Emission Software

Record the following business transactions, using T-accounts, for the company Auto Emission Software. The
company uses the following five accounts:

Asset accounts: Bank, Accounts receivable

Liability account: Accounts payable
Income account: Sales
Expenditure account: Purchase of goods

a) Goods for SEK 16 540 purchased, payment in cash through bank account.*
b) Products for SEK 12 210 sold in cash, money deposited in bank account.
c) Goods for SEK 14 380 purchased, through invoice.
d) Goods for SEK 2 670 purchased, payment in cash through bank account.
e) Products for SEK 23 780 sold, through invoice.
f) Products for SEK 2 430 sold in cash, money deposited in bank account.
g) An accounts payable (i.e. a liability to a supplier) of SEK 14 380 paid, from bank account.
* Disregard negative balance on the bank account.

Bank Account[ payable

Accounts receivable Sales

Pucchr of goods

......
27
 3.5 Bojen Ltd
Bojen Ltd sells plumbing supplies, primarily to construction companies. Both sales to customers and purchases
from suppliers are made on credit (i.e. through invoice), unless otherwise stated. Record the following business
transactions from the beginning of April, using the specified T-accounts below. The company has two bank
accounts, A and B.

2/4 Invoice received from Ikea referring to delivery of office equipment (desks, bookshelves etc.) for SEK
27 040 (voucher 431).
The company pays rent, SEK 13 200, through bank account B (voucher 432).
Invoice sent to Lindstedts Byggnads AB concerning delivery of water closets (WCs) for SEK 23 780
(voucher 433).

3/4 Invoice from Gustafsbergs AB is paid from bank account B. The invoice is recorded as an accounts
payable and amounts to SEK 26 400 (voucher 434).
Invoice received from Telia for mobile subscription fee of SEK 1 460 SEK (voucher 435).
A package of 1,000 leaflets is purchased for 80 SEK and is paid through bank account A
(voucher 436).

4/4 Payment received, through bank account B, from Bygget AB for an invoice of SEK 34 260. The
invoice has previously been recorded as an accounts receivable (voucher 437).
Invoice sent to Byggleveranser AB, SEK 41 640, for bathroom equipment (voucher 438).
Electricity bill of SEK 5 379 SEK is received (voucher 439).

5/4 Invoice of SEK 22 300 is received from Watem AB . The invoice refers to a delivery of faucets
(voucher 440).
Invoice received from Adera Information AB for production of an advertising brochure. The invoice
amounts to SEK 34 150 (voucher 441).
Flowers to the canteen are bought for SEK 310, paid through bank account A (voucher 442) .

6/4 Invoice from Watem AB of SEK 43 720 is paid through bank account B. The invoice has previously
been recorded as an accounts payable (voucher 443).
Byggleveranser AB pays an invoice of SEK 24 280 through bank account B. The invoice has
previously been recorded as an accounts receivable (voucher 444).

I
I

28
 Equipment Accounts payable

Accounts receivable Sales

Bank account B Purchase of goods

Bank account A Advertising

Telecom Office supplies

Electricity Rent

29
3.6 Klasses akeri
Klasses akeri (Klasse's haulage company) reports the following financial balance at the start of year 1.

Balance sheet (thousand SEK)

Bank 75 Equity 25
Loans 50
75 75

a) Record the opening balances in the accounts in the company's accounting plan (shown as T-accounts below).
Then record the following business transactions from year 1 (numbers in thousand SEK). All payments are done
in cash through the bank account.

a) Purchase of fuel: SEK 16 thousand

b) Payment of repairs and maintenance: SEK 7 thousand
c) Income for performed transports: SEK 70 thousand
d) Payment of salaries: SEK 48 thousand
e) Interest expenditures: SEK 3 thousand
f) Expenditures for vehicle tax and insurance: SEK 5 thousand
g) Private cash withdrawal: SEK 2 thousand

Bank Equity

Operational expenditures Liabilities

Transport income

30
b) Verify that the accounting is correct by summing the debit and credit sums.

Account Debit Credit

Bank
Liabilities
Equity
Operational exp.
Salaries
Interest exp.
Transport income
Total

c) Specify the cash balance, i.e. closing balance of the bank account, at the end of the year. What are the year's
income and expenditures in total?

3.7 Performania AB
Record the following business transactions for Performania AB. Use the specified T-accounts. Close the
accounts and compile a balance sheet for the year. The company uses two bank accounts, A and B.

a) The owners invest SEK I 460 000 as start-up capital. The amount is deposited in the company's
bank account B.
b) The bank grants Perfonnania a loan of SEK 875 000, which is deposited in the company's bank
account A.
c) A company car is purchased for SEK 523 000, through invoice.
d) Computers are purchased for SEK 125 000, paid through bank account A.
e) A safe is purchased for SEK 57 000, paid through bank account B.
t) Office furniture is purchased for SEK 15 000, through invoice.
g) The bank loan is amortized by SEK 10 000, from bank account A.
h) The company invests SEK 517 000 in a computer network, paid through bank account B.
i) The company pays the invoice of SEK 523 000 for the purchase of a company car, through bank
account A.

31
ASSETS LIABILITIES & EQUITY
Equipment Equity

Liabilities

Bank Account B
Accounts payable

Bank account A

Cars Computers

Balance Sheeet

32
3.8 Lasse's fashion studio
Lasse runs a fashion studio on his spare time. He designs and sews custom designed clothes. Record the
following business transactions and compile a report showing the profit of the operations for January, i.e. an
income statement.

January 4th:
a) Sales of three dresses for SEK 12 750, in cash.
b) Purchase of office supplies for SEK 326, in cash.

January 8th
c) Purchase of fabric for SEK 1 400, through invoice.
d) Purchase of buttons for SEK 110, in cash.

January l l
e) Takes an insurance policy for the company premises, pays in cash SEK 860.

January 12
f) Sales of three dresses for SEK 13 080, in cash.

January 18th
g) Pays telephony subscription fee of SEK 640, in cash.

January 21st
h) Purchase of fabric for SEK 830, through invoice.

January 28th
i) Pays rent of SEK 3 240, in cash.
j) Sales of four dresses for SEK I 2 950, in cash.

33
 Cash (in hand) Accounts payable

Office supplies Sales

Telecome

Purchase of material

Rent

Income Statement

Insurances

34
3.9 Aspekten
Aspekten is a trading company. The balance sheet shows the company's financial situation on 31 December
20XI:

Balance sheet year 20X I

Cash (in hand) 18 000 Equity 38 000
Accounts receivable 20 000 Liabilities 30 000
Bank 40 000 Accounts payable 10 000
78 000 78 000

Begin the fiscal year 20X2 by entering the opening balances in the accounts below. Then record business
transactions 1 - 5 and com pi le the income statement and the balance sheet for year 20X2, per December 31.

1) Goods are sold for SEK 25 000, in cash.

2) Goods are purchased for SEK 18 000, on credit (through invoice).
3) Goods are sold for SEK 12 000, on credit (through invoice).
4) Goods are purchased for SEK 10 000, in cash.
5) The loan is amortized by SEK 5 000, from the bank account.

35
 Assets Liabilities & Equities
Cash (in hand) Equity
Ii Ql'Jr) l6 0 0 Cl 1<3~000"---~ 31 J0o 01> 1
1-S-- oou
'.s. 'B 0l!J0 ? t ()-::,(")
1,U. Otl()

Bank Loans
f ------~ -------
Ots C/o OtlO S' ::Joo ~ S Ol'J O :$ o Oo O CJ \5 t
ti,_ L-~ 00<'.:I\} C1:)
JO dclO
l/ 0 o Cr-, 110 oru

Accounts receivable Accounts payable

t Oil 20 00 O
4 :Si
-, J
OCJO"'C?j
h 0 60

'_.,?,. 0()0 sl Ooo

Expenditures Income
Purchase of goods Sales

1' \~ 000 ()CJ t')

\o o oo 00 0

2~ Goo
17 (JOC)

Balance sheet (BS) Year 20X2 Income Statement (IS) 20X2

A
(IJJ,"' Ts OoO
gl-""-\t sr ono
~p'L. 1> 1 r)CJ 0
::=
\ 00 000

[00 C)OO

36
3.1 O Kallqvist Consulting Ltd
During the first year of operations, the following business transactions occur for Kallqvist Consulting Ltd.
Record these business transactions in the T-accounts below and establish the income statement (IS) and the
balance sheet (BS) for the end of the year. The company has two bank accounts, A and B.

a) The owner deposits SEK 200 000 as start-up capital which is deposited in a recently opened bank
account A.
b) The owner transfers SEK I 00 000 from bank account A to the company's other bank account, bank
account 8.
c) The bank grants the company a loan of SEK 80 000, which is deposited in bank account A.
d) A computer is purchased for SEK 30 000 and is paid through bank account A.
e) An invoice of SEK 3 000 for advertising is paid through bank account B.
f) Customers pay the company SEK 60 000 for contracts completed, payment to bank account B.
g) Interest on the bank loan of SEK 2 000, paid through bank account A.
h) Salaries of SEK 80 000 are paid from bank account A.

37
 ASSETS LIABILITIES/EQUITY
Equipment
I
\J
Zoo It(

-!'.'.,Dr)OC)

Bank account B Loans

INCOME
Bank account A Sales

1o o ooo 6

f j
'l. ood
so 00<:1

r) ~() '!- ~
?J.;C>v._
EXPENDITURES
Salaries Income statement (IS)

1 io (')oo s '60 k. 60 Ll I
s I.{
2 IL ~L\)\)

"b<=:. k ½
Balance Sheet (BS) Dec 31
A_ 4 0 t.l ~<t> ~ t /l
l <i" 7 k ~ z_oo'R
b<? k

1 ~ \ \l "t.iQk
Interest expenditures
-~
~

38
 3.11 Sara's Courier Service AB
In January, Sara started a courier company (in the form of a limited liability company) focusing on sustainable
courier services in Stockholm city center. Record the following business transactions and establish the income
statement and the balance sheet for the company's first fiscal year. The courier company uses the following
accounts:

~
~lariss ~
~eHSttffiaeles, l'lffise b
i;iw@I ~electricity) 1;
m@etric i'COO!ecs A
Maintenance & insurances f
equity %•
I-tttertsrtxpettditrne1,- f
~
~es-r-
B-a-uk loam;-

A) Sara invests SEK 50 000 of her private funds as share capital in the company.
%" At the start, the company receives a bank loan of SEK 60 000.
,.e'f Purchase of two electric scooters for a total of SEK 40 000.
,.BJ Purchase ofoffice supplies (consumables) for SEK 3 000 .
.Jl1" Expenditures for electric charging of scooters for a total of SEK 5 000.
_j)J Expenditures for maintenance and insurance of electric scooters SEK 6 000.
:if' Interest expenditures SEK 1 000.
-hY" Income from performed transport services, SEK 280 000.
-1'( Salary for Sara and a part-time employee for a total of SEK 20 000 per month.
j) Depreciations according to plan of the electric scooters, based on an economic life of 10 years (i.e. 10%
of the cost of acquisition).

sf-Uct'll~S
Z'fok-\Ev
\.l (wcot'-lf t
()ff !lf S. f\Lt 5

"®\<to k

\s ' l-,1 C.
Z '-\0 '
~
1-1
s
G
I

ce:Jft \l.
3.12 Pacioli & Co
The following business transactions occurred during the first fiscal year of the accounting firm Pacioli & Co.
The company has two bank accounts, A and B. All payments, deposits and withdrawals are in cash, through
bank account B, unless otherwise stated. Record the business transactions in T-accounts and prepare an income
statement and a balance sheet per December 31.

a) The owner deposits SEK 25 thousand as start-up capital.

b) The company is granted a bank loan, SEK 30 thousand.
c) Transfer from bank account B to bank account A, SEK 24 thousand.
d) Purchase of equipment for SEK 20 thousand kr.
e) Purchase ofoffice supplies, SEK 7.5 thousand.
t) Clients pay SEK 84 thousand for work performed.
g) Invoice for advertising is paid, SEK 5 thousand.
h) Rent is paid, SEK 12 thousand.
i) Phone and postage are paid, SEK 3 .6 thousand.
j) Interest on bank loan is paid, SEK 2.7 thousand.
k) The owner withdraws SEK 15 thousand for her own use.
I) The bank notifies that the interest on bank account A for the year amounts to SEK 1.2 thousand.
There is no interest on bank account B.
m) At the year-end closing, depreciations on equipment are made, SEK 6 thousand.

40
ASSETS LIABILITIES & EQUITY
Bank account B Equity

Bank loan

Bank account A

Equipment
INCOME

Sales

EXPENDITURES

Office supplies
Interest income

Advertising

Rent Income statement

Telecom and mail

Balance Sheet

Depreciations

41
3.13 Measure Gadget Ltd
The company Measure Gadget Ltd, which has been in operations for one year, was started with an equity of SE]
200 000. The company manufactures customized electronic measuring instruments. The cash flow has been
weak during this first year of operations but the owners have managed to get an advanced payment from a
customer for 60 measuring instruments that are to be delivered at the beginning of next year. The company has
two bank accounts. Some payments, deposits etc., are done through bank account A, some through bank accoun
B. The company has neither a material, nor a finished goods inventory. During the first fiscal year, the followin,
business transactions have occurred.
Record these transactions in T-accounts and prepare an income statement and a balance sheet for the first fiscal
year.

a) The company starts with an equity of SEK 200 000, deposited in bank account A.
b) Advance payment for 60 measuring instruments, (SEK 90 000) to be delivered at the beginning
of next year. Payment to bank account B.
c) The company has received a bank loan of SEK 50 000, the money deposited in bank account A.
d) An invoice has been received for leasing an assembly machine, SEK 30 000.
e) The company has delivered I 00 measuring instruments (SEK 150 000), but only received
payment for 60 measuring instruments (SEK 90 000), through bank account B.
f) The company has received an invoice for the purchase of raw materials and components of SEK
110 000.
g) The company has paid SEK 4 000 for maintenance of the facilities, through bank account A.
h) The company has paid the invoice for the lease of the assembly machine, SEK 30 000, through
bank account A.
i) The company has paid SEK 2 000 for postage, telephony, etc., through bank account 8.
j) The company has paid SEK 1 000 for various office supplies, through bank account A.
k) The company has paid the invoice for materials and component purchases, SEK 110 000,
through bank account A.
I) The company has paid interest to the bank, SEK 3 000, through bank account B.
m) The company has received an invoice for leasing of the second assembly machine, SEK 30 000.
n) The company has received payment for various accounts receivables (SEK 60 000), through
bank account 8 .
o) The company has delivered 250 measuring instruments for a total sum of SEK 375 000 and 25
control instruments fo r a total sum of SEK 175 000. The company has received payments for
these amounting to SEK 350 000, through bank account B.
p) The company has received an invoice for the purchase of raw materials and components of SEK
360 000.
q) The company has paid SEK 7 000 for marketing efforts, through bank account A.
r) The company has paid SEK 5 000 for the maintenance of the faciliti es, through bank account 8 .
s) The company has paid the invoice for lease of the second assembly machine, SEK 30 000,
through bank account B
t) The company has paid SEK 5 000 for postage, telephone, etc., through bank account A.
u) The company has purchased office supplies for SEK 1 000, through bank account 8.
v) The company has paid the invoice for purchased material and components, SEK 360 000,
through bank account 8 .
w) The company has paid SEK 3 000 in interest to the bank and amortized SEK 5 000 on the loan
from, both through bank account A.
x) The company receives SEK 3 000 in interest income on bank account A.
y) The owners have withdrawn SEK 30 000 in salary from bank account A during the fiscal year,
which also means payments for social security of SEK 12 000, paid through bank account 8.

42
 ASSETS LIABILITIES & EQUITY
Bank account A Equity
(

Bank loan

Bank account B

Accounts payable

Acounts receivable Advance payments from customer

EXPENDITURES INCOME

Office supplies Telecom & mail Sales

Machine leasing Interest revenues

Raw materials and goods Social security Income statement

Maintanence Marketing

Interest costs Balance sheet

43
3.14 lnkluMomsson AB
a) Record the following business transactions for the company InkluMomsson AB, including input and output
VAT on the specific accounts. The VAT rate is 25%.

a) Invoice is received for the purchase of goods for SEK 26 600 (including VAT).
b) Invoice is sent to customer for SEK 37 200 (including VAT).
c) Invoice is received for the purchase of goods for SEK 15 400 (including VAT).
d) Invoice is received for the purchase of goods for SEK 2 600 (including VAT).
e) Invoice is sent to customer for SEK 23 780 (including VAT).
f) The invoice is sent to the customer for SEK 2 430 (including VAT).
g) Accounts payable (c) is paid from bank account B.
h) Accounts receivable (s) is paid to bank account A.
i) Accounts payable (d) is paid from bank account A.
j) Accounts receivable (f) is paid to bank account B.
k) Accounts payable (a) is paid from bank account B.
I) Accounts receivable (b) is paid to bank account A.

b) Calculate InkluMomsson AB's VAT balance for the period, i.e. calculate if the company will need to pay
VAT to the tax authority, or if the company will recover VAT from the tax authority.

Accounts receivable Accounts payable

Sales

Output VAT

Bank account A Bank account B

44
3.15 ExkluMomsson AB

a) Record the following business transactions for the company ExkluMomsson AB, including input and output
VAT on each account. The VAT rate is 25%.

a) Invoice is received for the purchase of goods for SEK 13 420 (excluding VAT).
b) Invoice is sent to customer for SEK 58 900 (excluding VAT).
c) Invoice is received for the purchase of goods for SEK 6 240 (excluding VAT).
d) Invoice is received for the purchase of goods for SEK 7 320 (excluding VAT).
e) Invoice is sent to a customer for SEK 5500 (excluding VAT).
f) Invoice is sent to a customer for SEK l 9 900 ( excluding VAT).
g) Accounts payable (c) is paid from bank account A.
h) Accounts receivable (e) is paid to bank account B.
i) Account spayable (d) is paid from bank account B.
j) Accounts receivable (f) is paid to bank account A.
k) Accounts payable (a) is paid from bank account B.
1) Accounts receivable (b) is paid from bank account A.

b) Calculate ExkluMomsson AB's VAT balance for the period, i.e. calculate if the company will have to pay
VAT to the tax authority, or if the company will recover VAT from the tax authority.

Accounts receivable Accounts payable

Sales Purchase of goods

Output VAT

Bank account A Bank account B

45
4. Financial Statement and Analysis

Financial Statements
4.1 Alfabetica AB
You have been assigned to establish an income statement classified by nature of expense for the company a~ Al
(in thousand SEK). The tax rate for corporate tax is 22 %.

Depreciation of buildings, according to plan ~

Depreciation of machinery and equipment, according to plan l 32 - Je.\2"' e,.:c,,_~-'S-
Additional depreciation f;:1 §'j1 CK-\1vtJ(I ~G ,,.,r,,.__
C OStS ' an d emp Ioyeeencms-
• "tOf ~a Iancs b c:~ ~ ~ ~-':N~~-
~- -= . : J ~
Costs for fflvv materials aHd eoPwrnab les .W--
Net salss 1-WO-- ~ r.~S'
Capital gaiHs from s.illit1g
Net profit for the year
Iu t e . r e g ~
l ~u-ro~s~M=1r-,ore(d i,rlJJ

Jptecest-ea:sts- 154 =:¢..-o,o·e,( eu,11

Tax on annual profit
Increase of untaxed reserves 33 ----- 0 t?<V?f'. ~
Other operating costs I 50@= a u\ ,,c ·
~

4.2 LastMinute Ltd

The following financial figures refer to LastMinute Ltd. Use the numbers to establish a balance sheet in
accordance with Swedish standards (all figures are in thousands SEK).

Bank balances 870

Long-term receivables 400
Current tax liabilities 160
Accounts payable 920
Accounts receivable 990
Profit brought forward 400
Inventories l 640
Tax allocation reserve 650
Machinery and equipment
Value according to the books at the start of the year 6 700
Depreciations according to plan l 488
Annual profit 612
Bank loans 3 550
Share capital 2 400
Accumulated additional depreciations 420

46
 4.3 Lagergren & Partners AB
The company Lagergren & Partners presents the following figures (in thousand SEK) at the end of the year.
Help the company to compile an income statement and a balance sheet.

Operating costs 750

Profit brought forward 30
Inventories 300
Interest revenues 7.5
Appropriations 150
Share capital 180
Bank 15
Operating revenues _ l 072.5
Depreciation according to plan 60
B Interest costs 15
Long-term receivables 150
Cash 82
Tax 23
Current receivables 75
Non-current liabilities 142
Accounts payable 30
Advance payments from customers 60
Equipment 30
Untaxed reserves 105

Appropriations and Depreciations

4.4 Deduction AB
The company Deduction AB has always applied the principle of depreciations as recorded in the books. During
the past five years, the company has invested in production equipment (machines) as follows:

Year l SEK 300 000

Year 2 SEK 100 000
Year 3 SEK 25 000
Year 4
Year 5 SEK 50 000

What is the value according to the books of the company's production equipment by the end of year 5, if the
company each year accounts for the lowest possible value of the production equipment?

4.5 LowValue Ltd

The newly founded company LowValue Ltd has, over the past four years, bought and sold the following
production equipment (machines):

Machine Purchase price Sales price

A SEK 100 000, year 1
B SEK 400 000, year I Sold for SEK 300 000, year I
C SEK 400 000, year 2 Sold for SEK 200 000, year 4
D SEK 250 000, year 3
E SEK I 00 000, year 4

LowValue Ltd applies depreciation as recorded in the books and intends to report the lowest possible residual
value of the machines at the end of year 4. What is this residual value and what is the depreciation for year 4?

47
4.6 ORAB
OR AB wants to calculate the lowest possible value for their production equipment (machines) for the year end
closing of 20X5. The opening balance of 20X5 was SEK I 300 000 and consisted of machines purchased as
follows: year 20X0 for SEK 620 000, year 20X 1 for SEK 480 000, year 20X2 for SEK 710 000, year 20X3 for
SEK 500 000 and year 20X4 for SEK 325 000.

During 20X5, the following happened:

On February 3, OR AB sold a machine, which was purchased 20X4 for SEK 25 000. The sale generated the
same amount, i.e. SEK 25 000. On March 15, the company bought a computer for SEK 20 000, with an
estimated economic life of one year, which in practice meant that the computer is considered as a consumable
and was expensed directly. Furthermore, on September 20, the company purchased a lathe for SEK 200 000,
with an expected economic life of IO years. On December 1, finally, the company bought painting equipment fo1
SEK 80 000, with an estimated life of five years.

Calculate the lowest possible closing balance for machinery and equipment for the financial statements of20X5.

4. 7 Depreciations at Trebla
During the last five years, the company Trebla has purchased the following production equipment (machines):

Year Purchase value (price)

20X I SEK 300 000
20X2 SEK 80 000
20X3 SEK 100 000
20X4 SEK 50 000
20X5 SEK 150 000

No machines have been sold and the annual depreciations according to plan are 20 % of the price of acquisition.
On the basis of these data, calculate for each of the five years:

a) The depreciations as recorded in the books ( o g' +- pv._x I ho. '...k ~ - C ts

b) r The depreciations according to plan / Sw,~ ,.,(pw ,c_}, ,-.Q.5 I /'CJ )
0

c) \ The additional depreciations ( Y€f r . boo le c-kf, . p ~ ')

d) Accumulated depreciations according to plan1
e) Accumulated additional depreciations ~

4.8 Ohm Consulting AB

Ohm Consulting AB reports December 3 1 the items below in its income statement. The company decides to
make a maximum allocation to a tax allocation reserve. The company has no tax allocation reserve from the pas
Maximum allowed allocations are 25%. Complete an income statement, classified by nature of expense, and
calculate the net profit for this fiscal year. The rate of corporation tax is 22% (all figures in SEK).

Operating revenues 9 650 000

Interest revenues 253 000
Operating costs 6 823 000
of which salaries and employee benefits 3 100 000
of which other external costs 3 723 000
Depreciations according to plan 550 000
Interest costs 180 000
Extraordinary costs 92 000

48
 4.9 Tax allocations reserves

a) The year-end closing of Eureka Inc shows a profit after appropriations (but before tax) of SEK l 680
000. This is the first time the company intends to make allocations to a tax allocation reserve. Calculate
the maximum possible allocation to the tax allocation reserve.
b) VRKSTD Inc reports a profit after financial items of SEK 6 960 000. In addition to all locations to the
tax allocation reserves, the company has the option to make additional depreciations of SEK 760 000.
The company has no existing tax allocation reserves that must be resolved this year. Calculate the
maximum possible allocation to tax allocation reserves.
c) Six years ago (20X l ), Karla Ve rs tad Inc made allocations to the tax allocation reserves of SEK 365
000. Thereafter, no further allocations have been made. This year (20X7), the company reports a profit
after appropriations (but before tax) of SEK 2 975 000. Calculate the maximum possible allocation to
tax allocation reserves.

4.10 Consultme AB
The target of Aniander Consulting is an annual profit after tax of SEK l 50 000 over the next five years.
However, it is estimated that profit before appropriations and tax, due to changes in demand in the market and
price fluctuations, will vary over the years (see below). Thus, the company intends to smooth the annual
profits/losses over the five years and the only opportunity available is to use allocations and resolutions of tax
allocation reserves.

year I year 2 year 3 year 4 year 5

Preferred profit after tax (thousand SEK) 150 150 150 150 150

Estimated profit before allocations to and

resolution of tax allocation reserves
and before taxes (thousand SEK) 420 600 -56 220 256

Calculate the necessary allcoations to tax allocation reserves, and/or resolutions of tax allocation reserves, to
meet the desired annual profit after tax. Specify which years it is possible to achieve the desired net profit after
tax. The tax rate is 22% (In the calculations, ignore the (flat-rate) tax imposed on the tax allocation reserves in
limited liability companies.)

Financial Analysis
4.11 Balansakten AB
The company Balansakten AB reports total assets of SEK 3 000 000. Of these, the fixed assets constitute SEK
,t. I 800 000 and the current assets SEK I 200 000. Equity is SEK 500 000 and the long term debts are SEK
1 200 000. The rest are current liabilities. The inventory is valued to SEK 400 000.

a) Calculate the company's acid test ratio.

b) Calculate the company's current ratio.
c) Calculate the company's equity ratio.
d) What do you need to know to be able to state whether the acid test ratio and current ration in this
company are sufficient? Why?
e) What do you need to know to be able to state whether the equity ratio I in this company is sufficient?
Why?

49
4.12 Nycklab
The company Nycklab, presents the following information for the last fiscal year:

Fixed assets 2 200 Equity 900

- of which machines and equipment 800 - of which share capital 500
Current assets l 400 Non-current liabilities l 900
- of which accounts receivable 200 Current liabilities 800
- of which inventory 700
3 600 Total equity and liabilities 3 600
Total assets

a) Calculate the acid test ratio for Nycklab

b) Calculate the current ratio for Nycklab
c) Calculate the equity ratio for Nycklab
d) For each of the ratios above; discuss what they can be used for?

4.13 Skakis AB
The company Skakis AB presents the following balance sheet for the last fiscal year (all figures in million SEK)

Assets Equity and Liabilities

Fixed assets 300 Equity 300
Inventories 100 profit for the year 15
Accounts receivable 50 Long-term liabilities 60
Bank balance 75 Current liabilities 150
Sum 525 Sum 525

Calculate the following financial ratios and explain the purpose of each of them:

a) Current ratio
b) Debt/Equity ratio
c) Acid test ratio
d) Equity ratio
e) Use these financial ratios to comment on the company's financial situation.

50
 4.14 DEBAB och FEBAB
The two competitors DEBAB and FEBAB show the following numbers for the previous fiscal year (in thousand
SEK):

DEBAB FEBAB
Sales 5 000 8 000
Profit before financial revenues and costs 850 600
Financial revenues 500 250
Financial costs 150 200
Equity 500 600
Total capital 2 000 l 600

Calculate the following key ratios and compare the two companies.

a) Profit margin
b) Capital turnover rate
c) Return on total capital

4.15 Analyser AB
Analyser Ltd has just finished its second fiscal year. This year's, and the previous year's, balance sheets, as well
as this year' s income statement look like this (the tax rate is 22%):

Balance sheet (thousand SEK) Year 1 Year2 Year1 Year 2

Fixed assets Liabilities & Equity

Cars 300 400 Share capital 1 900 1 900
Machinery 4 050 5 290 Profit brought forward 1 088 1 368
Equipment 600 1 000 Annual profit 972 1 365
Current assets Untaxed reserves
Inventories 1 220 1 520 Accumulated additional depreciations 1 450 1 750
Advance payments to suppliers 480 480 Non-current liabilities
Other current assets 1 260 1 400 Bond loans 200 200
Cash and bank balances 900 1 000 Bank loans 1 900 1 850
Other 200 950
Current liabilities
Accounts payable 1 100 1 322
Current tax liabilities 0 385

Total assets 8 810 11 090 Total Liabilities & Equity 8 810 11 090

Income statement (thousand SEK)

Net sales 24 400 Tax rate: 0.22 0.22
Operating costs -21 450
Operating profit before depreciation 2 950
Depreciation according to plan -700
Operating profit after depreciation 2 250
Financial revenues 60
Financial costs -260
Profit after financial items 2 050
Additional depreciations -300
Profit before tax 1 750
Tax
-385
Annual profit 1 365

J... 51
Calculate the following financial ratios for the company:

a) Return on total capital (ROT) and return on equity (ROE).

b) Which of the earning capacity measures should have highest yield?
c) Profit margin.
d) Acid test ratio for the year 1 and 2. Comment on these ratios.
e) Current ratio for the year I and year 2. Comment on these ratios.
t) Equity ratio 1. Comment on these ratios.
g) Change in working capital from year 1 to year 2.
h) How much the company has invested in fixed assets during year 2.
i) How much the company distributed in dividends for year 1.

4.16 AB Nyckel
The company AB Nyckel reports the following balance sheet and income statement for the last fiscal year.

BALANCE SHEET (thousand SEK)

Assets Equity and Liabilities

Fixed assets Equity
700 Share capital 200
Machinery
290 Non-restricted equity 760
Equipment
Annual profit 183
Current assets
300 Non-current liabilities 280
Inventories
Accounts receivable 440
75 Current liabilities* 382
Cash
I 805 Total I 805
Total
* Including current tax liabilities
INCOME STATEMENT (thousand SEK)

Net sales 3 960

Operating costs - 3 485
Operating profit before depreciation 475
Depreciation -235
Operating profit after depreciation 240
Financial revenues 7
Financial costs - 12
Profit after financial items 235
Tax -52
Annual profit 193

Calculate the following financial ratios:

a) Return on total capital

b) Return on equity
c) Equity ratio
d) Acid test ratio and Current ratio
e) Profit Margin

52
4.17 Fina Produkter AB
Establish a balance sheet and an income statement for the company Fina AB . The details are shown below (all
figures in thousand SEK). In addition, calculate the seven financial ratios.

Bank balances 73 Advance payments from customers 10

Sales revenues 700 Share capital 182
Inventories 144 Depreciations according to plan 20
Allocation to tax allocation reserve 10 Tax allocation reserve 30
Accounts payable 55 Tax on this year's profit 20
Accounts receivable 20 Machinery and equipment 150
Real estate I0 Interest costs 45
Extraordinary costs 15 Provisions for pensions 10
Additional depreciations 20 Operating costs 500
Accumulated additional depreciations 20

a) Annual profit
b) Return on total capital and Return on equity
c) Equity ratio l and 2
d) Acid test ratio and Current ratio

4.18 IOT International

Below is the income statement and the balance sheet for the limited liability company IOT International per
December 31, last year. Calculate the following financial ratios. (Note that the income statement does not have
any subtotals.)

a) Total assets
b) Turnover
c) Operating profit after depreciation
d) Equity ratio 1
e) Equity ratio 2
f) Average credit time to customers
g) Return on total capital
h) Return on equity
i) Profit margin
j) Capital turnover rate

53
Income statement (million SEK)
Net sales 460.7
Raw materials and consumables -158
Other external costs -95.8
Costs for salaries and employee bent -170.9
Depreciations -14.2
Interest revenues 2.1
Interest costs -12.2
Extraordinary revenues 1.9
Extraordinary costs -0.5
Appropriations -2.8
Tax -2.3
Annual profit 8.0

Balance sheet (million SEK)

Equity and Libailities
Assets
Fixed assets Equity
Share captal 50.0
Capaitalized expenditure for R&D 4.3
Profit brought forward 10.0
Goodwill I 1.2
Annual profit 8.0
Land and buildings 30.0
27.8 68.0
Machinery and equpiment
Shares in subsidiaries 8.0 Untaxed reserves
Accumulated additional depreciation 20.0
81.3
Tax allocation reserve 9.0
Current assets
29.0
Inventories
Raw materials 5.6 Liabilities
Bank loans 54.0
Products in progress 23.0
Accounts payable 68.5
Finished products for sale 56.0
Current tax liabilities 2.3
Accounts receivable 49.3
Defferred income 10.0
Prepaid expenses 3.3
134.8
Shares listed on stock exchange 2.2
Cash and bank balances I l.1
150.5
Total Equity and Libailities 231.8
Total assets 231.8

54
4.19 Perspektivet AB
The wholesaling company Perspektivet AB shall establish its annual report. It is based on the following items,
(all figures are in thousand SEK):

Selling costs 82
Equipment 6
Cash and bank balances 19
Administrative costs 24
Cost goods sold 469
Share capital 32
Accounts payable 56
Increase of untaxed reserves 13
Accounts receivable 172
Shares in subsidiaries 11
Land and buildings 162
Machinery 6
Net sales 817
Untaxed reserves 92
Interest costs 12
Bank loan 46
Depreciation according to plan 23
Interest revenues 14
Inventories 93
Rental revenues 8
Profit brought forward 23
Dividends from shares in subsidiaries 4

a) Establish an income statement, classified by function of expense, and a balance sheet. Also calculate the
tax and the annual profit (tax rate is 22%).
b) Calculate the return on total capital
c) Calculate the return on equity
d) Calculate the equity ratios I and 2
e) Calculate the profit margin
f) Calculate the capital turnover rate

55
4.20 Projektteknik AB
The limited company Gunnar Selin Projekteknik AB on January 25 received a set of data for the previus fiscal
year from its accounting firm (see below). However, due to lack of time, the accountants left an incomplete
financial report.

a) Help Gunnar to establish a balance sheet and an income statement. Gunnar wants to make maximum
allocations to the tax allocation reserve. The tax rate is 22%.
b) Gunnar needs to increase the share capital of the company. In what way does a new capital issue and 2
stock dividend affect the balance sheet, i.e. which items are changed and how?

Previous fiscal year thousand SEK

Current tax liabilities 256
Accounts receivable 2 140
Additional depreciation 200
Costs for salaries and employee benefits 5 800
Capital loss, listed shares 40
Machinery and equpiment (after depr.) 3 200
Change of inventory (value increase) 640
Depreciation according to plan 450
Real estate property (value according to the books) I 200
Capital gains, sale of machine 40
Purchase, raw materials and consumables 5 800
Accounts payable 2 450
Profit brought forward 445
Cash and bank balances I 005
Net sales 14 650
Other external costs I 350
Bond loan 3 300
Share capital I 500
Inventory* 2 800
Interest costs 140
Tax allocation reserve from previous year I 100

* 20 % raw materials inventory, 30 % products in progress, 50 % finished goods inventory

56
 4.21 Industrial Corporation AB
The manufacturing company Industrial Corporation AB has completed its fiscal year 20X5. The chief financial
officer (CFO) has compiled a preliminary balance sheet and income statement as of December 31, 20X5. The
work with closing of the books is now under way and a first step is to make various adjustments to the balance
sheet and income statements in the tables below. Assume that the company does not make any depreciations on
its buildings and real estate. Moreover, the company does not make any appropriations in this step.

a) Adjust the balance sheet and income statement with the following three items and calculate the "Profit after
financial items" for 20X5:

I) Depreciation according to plan for machinery and equipment are estimated to SEK 20 million for 20X5.
2) During the year 20X5, the company's real estate is estimated to have increased by SEK 30 million in
value.
3) The company paid and recorded, on December 31 20X5, rent in advance for the office premises of SEK
IO million. This advance payment relates to the period January - March 20X6.

b) Based on "Profit after financial items" from a) above, calculate the corporate tax that the company has to pay
for 20X5, as well as the annual profit for 20X5 (corporate tax rate: 22 %). In addition, indicate how much the
total assets have increased or decreased in value during the year.

Balance Sheet 20X5 (Million SEK)

Before After Before After

ASSETS LIABILITIES & EQUITY
adjustments adjustments adjustments adjustments

Fixed Assets Equity

Land and buildings 300 Share capital 1 200
Machinery and equipment 1 900 Profit brought forward 400
2 200 Annual profit --
1 600

Current Assets Untaxed reserves

Raw Materials 150 Acc. additional depreciations 100
Products in progress 230 Tax allocation reserves 200
Finnished products for sale 320 300
Accounts receivable 200 Liabilities
Interim claims 0 Bank loans 1 400
Cash and Bank 500 Accounts payable 300
1 400 Interim debts 0
Tax liablilites 0
1 700

3 600 3 600

INCOME STATEMENT 20X5 (MILLION SEK)

Before After
adjustments adjustments
Net sales 410
Raw Materials and consumables -100
Employee benefit expenses -80
Cost of premises -220
Operating profit/loss before depreciations
(EBITDA) 10
Depreciations (according to plan) --
Operating profit/loss after depreciations
(EBIT) --
Financial revenues 20
Financial costs -30
Profit/loss after financial items --
Tax
0
~nnual profit/loss --

J... 57
5. Corporate Finance

Capital Requirements
5.1 DASAB
For each of the transactions below, state if the capital requirements for the company DASAB increase, decrease
or are unchanged.

a) The credit period to customers increases. i' ~ c,...,, "'s'4-

b) The inventory turnover rate increases. d,Pr r"o re
c) The product portfolio of DASAB increases with one new product.
d) The average storage time in the raw material inventory decreases. 'Y ~ r h:,, r ~f'd
e) The average storage time in the finished goods inventory decreases . oer t"' 0 s ~
f) The credit period from suppliers increases. rfac,-,1.1, <:"
g) DASAB invests in a new machine. :", r"O :,c,
h) DASAB invests in new premises for its production. ,('c_,.Pa ~S
i) DASAB purchases shares in another company. ;11 Gre.c <, ~ r
j) DASAB introduces more strict payment procedures, which means that the customers .pay their invoice
faster. ('(,r" ro ~

5.2 Snart AB
How is the capital requirements of the company Snart AB affected by the following transactions (all of them a·
independent of each other)? For each of the transactions, specify if the capital requirements increase , decrease,
or are unaffected. Also, briefly explain why and specify if it is the fixed assets , and/or the working capital that
affected.

a) Snart AB introduces a new product in its product portfolio.

b) The inventory turnover rate increases.
c) Snart AB buys a new lathe (machine).
d) The credit period from suppliers increases.
e) The credit period to customers decrease.

5.3 Hon & Han AB

The company Hon & Han AB has a cash balance of SEK 120 000, accounts receivables of SEK 35 000 ,
inventories of SEK 225 000, and fixed assets of SEK 100 000. The net sales for the year are SEK 350 000.

a) Calculate the capital turnover rate.

b) Calculate the capital turnover rate if the accounts receivable increases with 25 %.

58
 5.4 Kapitalis AB
The chief financial officer ofKapitalis AB needs to calculate how much wackiog capital that is tied up in the
.£Qll)pao¥J)p.erations. She wants to apply the "time method" for these calculations. Help her with this, based on
the following data:

Each product requires material for SEK 210 and labor for SEK 120.The company estimates to produce..!.1Q_
2!Qducts nee day.. The material, which on average is stored in 20 days in the raw material inventory, is added
directly at the start of production. The labor is performed continuously during the production process. The
production is estimated to take l O days, on average. After production, the products are stored for an average of
10 days in the inventory for finished goods. The company is on average given a 15 day credit period from its
~ but gives its customers a 30 day credit period.

5.5 Kapit AB
The company Kapit AB produces 800 units per day of its product. Each unit requires raw materials for SEK 220
and labor (direct wages) for SEK 180. The production lead time is 4 days per unit and the finished products are
stored for an average time of IO days. Kap it AB offers its customers an average credit period of 30 days. The
material is stored for an average of 20 days and the suppliers offer a 14 days credit period on average. The
material is added at the beginning of the production process, while the work is performed continuously during
the production process. ·

Calculate the working capital requirement. Use the balance method, so that capital tied up in each balance sheet
item is specified.

5.6 Rojmix AB
:s The manufacturing company Rojmix AB, which just started, needs to calculate its capital requirements. The
following information is available:

Rojmix needs to buy production machines for a total of SEK 200 000. In these machines, l 200 units of its
product, Strux, will be produced per day. The labor costs for one Strux is estimated to SEK 5 and the material
cost per Strux to SEK 42. When Rojmix purchases materials, it receives a 14 days credit period on average from
its suppliers, and it offers the same credit terms to its customers. The average storage time of the raw material
re inventory is l O days. Thereafter, the production, which takes 2 days, is initiated. The material is added directly at
the start of production, while the work is carried out continuously during the two days. After production, the
is products are stored on average for 2 days in the finished goods inventory. Thereafter, the products are sold to the
customers. In addition, the company aims to keep a safety capital of SEK 50 000.

a) Calculate the company's working capital requirements.

b) Calculate the company's total capital requirements.

5. 7 Flodet AB
: lodet AB needs to calculate how much capital that will be tied up in the operations. The following information
1s available:

The company will purchase two machines; one for SEK 1 600 000, and one for SEK l 200 000.
The company plans to produce 2 600 units per day of its product.
• The material is added directly at the beginning of the production process, while work is carried out
continuously during production. Production time for the product is expected to be IO days.
For each unit, the materials costs are estimated to be SEK 25 and the labor costs SEK 30.
• It is estimated that the average time for goods in the raw material inventory is 20 days, while the
average storage time for products in the finished goods inventory is IO days.
• It is estimated that the need for safety capital is SEK 600 000 .
The company receives an average credit period of 10 days from the suppliers and gives its customers a
credit period of 20 days.

59
a) How much capital will be tied up as working capital?
b) How much capital will be tied up in total?
c) How much capital will be tied up as work in progress?
d) How much capital will be tied up in material?

5.8 Entender
Two partners plan to start a new business which will produce the new product Entender. They need to invest in
production equipment for SEK 2 300 000, which is depreciated with 20 % each year. Moreover, they estimate
that they will need a safety capital of SEK 150 000.

The planned production volume is projected to 1 200 units Entenders each day during the first year. Each
Entender means salary (that is added continuously during the production process) of SEK 60, and cost of
material (added directly at the start of the production process) of SEK 45 . The raw material is stored 15 days, or
average. The production lead time is 8 days. When the product is finalized it is placed in the finished goods
inventory for, on average, 25 days before it is delivered to a customer. The company receives a 20 days credit
period from the suppliers, while the customers receive a 14 days period of credit, on average.

5.9 Achilles Ltd

The sports gear manufacturer Achilles Ltd is planning to expand its range of sports equipment with a new,
ergonomic sneaker: The Jogger. The cost to manufacture a pair of Jogger is estimated to SEK 140 and the
company's CFO has made the following cost breakdown.

Material (variable) SEK55

Salaries (variable) SEK 38
Miscellaneous variable manufacturing costs SEK 10
Fixed costs (including depreciations of SEK 8) SEK 22
Sales commissions (variable) SEK 15
SEK 140

• The estimated production volume is 80 I 00 pairs per year.

• New production equipment must be purchased for SEK 520 000. In addition, a minor adjustment oft!
production plant is estimated to cost SEK 125 000.
• All material is added in the beginning of the manufacturing process, after been kept in storage for 25
days (on average).
The suppliers' invoices are paid after 14 days, on average.
Salaries, miscellaneous variable manufacturing costs, and relevant fixed costs are added continuous!)
during the manufacturing process.
The manufacturing lead-time for a product is 6 days, on average.
The finished products are, on average, kept in storage for 28 days.
Sales commission is paid when a product is sold.
The customers (retail stores) are offered the following payment tenns: 10 days with 2% discount on ·
invoiced prize, or 30 days without discount. It is estimated that approximately half of the customers ·
after IO days and the remainder after 30 days. ·

Calculate the capital requirements for Jogger by using both the time method and the balance method.

60
 Cash flow analysis
5.10 Meroven Inc.
The following changes have occurred between two years in Meroven fnc.:

a) Accounts receivable have increased with SEK 120 000.

b) Accounts payable have increased with SEK 50 000.
c) Inventory has increased with SEK 70 000.

For each of these changes, explain how it affects the company's working capital and its liquid assets. Specify not
only the effect, but also explain why the effect occurs.

5.11 Eureka Ltd

Eureka Ltd is preparing a cash-flow analysis for the year 20X7 based on the information bellow (in thousand
SEK). No new share issues have been carried out during the two years. The shareholder dividend paid during
20X7 is SEK 10 000.

BALANCE SHEET
Assets 20X7 20X6 Equity & Liabilities 20X7 20X6
Fixed assets 300 400 Share capital 400 400
Inventories 200 300 Profit for the year 100 50
Accounts receivables 300 150 Non-current liabilities 250 250
Cash 50 50 Current liabilities 100 200
Total Assets 850 900 Total Equity & liabilities 850 900

INCOME STATEMENT 20X7

Revenues 8 000
Cost of sales - 7 790
Depreciations -60
Taxation - 50
Annual profit JOO

a) What effect does the change in inventories have on the cash flow from operating activities?
b) What effect does the change in current liabilities have on the cash flow from operating activities?
c) What effect does the change in fixed assets have on the cash flow from operating activities?
d) Calculate the cash flow from investment activities.
e) Calculate the cash flow from financing activities.

the
pay

61
5.12 The Short-term Perspective
How is the Acid test ratio affected by the following transactions? Specify if the Acid test ratio increases,
decreases, or remains unchanged. Consider each of the transactions separately. The company is a manufacturing
enterprise and has an Acid test ratio of approximately I .

a) Depreciation on the company's corporate cars.

b) Purchasing of components for the manufacturing process, paid through the bank account.
c) Impairment (write-down) of an accounts receivable (loss from bad debt).
d) Amortization of long-term bank loan.
e) Purchasing of office equipment, through invoice that has not yet been paid.
f) A new capital issue is implemented.
g) An order (contract) to a supplier is paid in advance.
h) A bank loan (long-term) is received.
i) A stock dividend is implemented.

5.13 The Long-Term Perspective

How is Equity ratio I affected by the following business transactions? Specify whether Equity ratio 1 increases.
decreases, or remains unchanged. Consider each of the transactions separately. The company is a manufacturin1
company and has an Equity ratio 1 of approximately 0.4.

a) Transfer between two of the company's bank accounts.

b) Purchasing of components for the manufacturing process, paid through the bank account.
c) Amortization of long-term bank loan.
d) A bank loan (long-term) is received.
e) Payment of an accounts payable.
f) A stock dividend is implemented.
g) The company's tax liability increases, through a decision by the tax authority.
h) Depreciation of the company's office building.
i) Sales of products through invoice (profit margin: 30%).

62
 5.14 JMWAB
JMW Enterprises AB presents the following balance sheets for the years 20X4 and 20X5, as well as the income
statement for 2015 (all figures are in million SEK).

Balance sheet (million SEK)

Assets 20XS 20X4 Equity and liabilities 20XS 20X4
Fixed assets Equity
Land and buildings 55.60 57.00 Share capital 84.00 84.00
Machinery and equipment 31.20 37.00 Profit brought forward 26.04 8.00
Shares in other companies 33.40 18.70 Annual profit 5.46 3.40
Total fixed assets 120.20 112.70 Total equity II 5.50 95.40
Current assets Untaxed reserves 30,00 14.10
Inventories 98.40 76.80 Liabilities
Accounts receivable 87.20 89.10 Bank loans 30.50 34.70
Cash and bank balances 6.50 7.40 Other non-current liabilities 59.60 72.80
Total current assets 192. 10 173.30 Current liabilities (incl. tax liabi lity) 76.70 69.00
Total liabilities 166. 80 176.50

,
J Total assets 312.30 286.00 Total equity and liabilities 312.30 286.00

Income statemeqt (million SEK) 20XS

Net sales 515.40
Operating costs -474.40
Operating profit before depreciation 41.00
Depreciations according to plan -15.20
Operating profit afier depreciation 25.80
Financial revenues 0.30
Financial costs -3.20
Profit after finacial items 22.90
Extraordinary revenues/costs 0
Profit before appropriations and tax 22.90
Appropriations -15.90
Profit before tax 7
Tax -l.54
Ann11a profit 5.46

a) How much has the working capital changed during 20X5?

b) How much has the company invested in fixed assets, excluding shares in other companies, during 20X5?

63
5.15 Rodriges El Mekano
The company Rodriges El Mekano presents the following balance sheets for 20X4 and 20X5 and income
statement for 20X5. The company uses the statement of cash flow presentation recommended by FAR. In 20X5
the company paid shareholder dividends of SEK 119 000.

Balance sheet (thousand SEK))

Assets 20X5 20X4 Equity and liabilities 20X5 20X4
Fixed assets Equity
Intangible assets 0 0 Share capital l 683 I 683
Tangible assets (buildings, machinery etc.) 2 056 l 975 Profit brought forward 5 466 5 247
Financial assets 7 Oil 5 088 Annual profit after dividends 2 264 219
Current assets Untaxed reserves
Inventories 2 127 l 906 Accumulated additional depreciations I LOI l 129
Advance payments to suppliers 0 0 Tax allocation reserves 890 I 991
Accounts receivable 678 498 Non-current liabilities 847 806
Other receivables 173 139 Current liabilities
Prepaid expenses and accrued income 161 171 Advance payments from customers 0 0
Short-term investments 0 l IOI Accounts payable 629 423
Cash and bank balances I 977 I 444 Current tax liabilities 672 152
Accrued expenses and deferred income 631 672
Total assets 14 /83 12 322 Total equity and liabilities 14 /83 12 322

Income statement (thousand SEK) 20X5

Net sales 10 607
Operating costs -8 385
Operating profit before depreciation 2 222
Other operational costs 0
Depreciations according to plan -318
Operating profit after depreciation I 904
Financial revenues 229
Financial costs -207
Profit after finacial items I 926
Extraordinary revenues/costs 0
Profit before appropriations and tax I 926
Appropriations
Change in tax allocation reserves I IOI
Change in additional depreciations 28
Profit before lax 3 055
Tax -672
Annua profit 2 383
Dividends to shareholders -119
Profit after dividends 2 264

a) Calculate how much capital that has been generated internally, i.e . "from the year's operations intern
generated funds" during 20X5.
b) Calculate much capital that has been provided in total, i.e. "funds provided" during 20X5.
c) Calculate how much capital that the company has utilized in total, i.e. "funds utilized" during 20X5.
d) Calculate the change in working capital during 20X5.
e) Specify the change in working capital in detail and compare it to the answer ind) .
NB: Increase of current tax liability is not taken into account here. It does not affect the cash flow th
year.

64
 5.16 Fearless
The company Fearless presents the following annual reports for 2016 and 2017 (all figures in thousand SEK).
The company paid SEK 50 000 in dividends during 2017. No new stocks have been issued and that the operating
costs include depreciations of SEK 200 000. The tax rate is 22 %.

Assets 2016 2017 Equity and liabilities 2016 2017

Fixed assets 4 500 7 350 Share capital 4 000 4 000
Inventories 2 650 2 700 Profit brought forward 0 2 350
Accounts receivable 860 820 Annual profit 2 400 2 600
Bank 90 80 Non-current liabilities 800 1 120
Accounts payable 900 880
Total 8 JOO JO 950 Total 8 JOO JO 950

2017
Operating income 25 100
- Operating expenses - 22 000
Operation profit 3 JOO
+ Financial income 500
- Financial costs - 1 000
Profit for the year 2 600

a) Calculate the acid test ratio for 2017.

b) Calculate the current ratio for 2017.
c) Calculate the return on total capital for 2017.
d) Calculate the return on equity for 2017.
e) Calculate the profit margin for 2017.
f) Calculate the capital turnover rate 201 7.
g) Make a cash-flow analysis for 2017. The company uses the following schedule of its analytical work:
Be careful of the signs of the terms, especially under part C.

CASH-FLOW ANALYSIS

A - FUNDS PROVIDED
From the year's operations internally generated funds
Sale of fixed assets
Decrease in long-term receivables
New share issues (and other financial contributions)
Increase in long-term debts
Total funds provided

B - FUNDS UTILIZED
Investments in real estates, buildings, machinery, and equipment
Investments in shares and bonds
Increase in long-term receivables
Decrease in long-term debts
Dividends to shareholders
Total funds utilized
ally
CHANGE IN WORKING CAPIT AL (A - B)

C. CHANGE IN WORKING CAPITAL, IN DETAIL

Increase (+)/ decrease (- ) of inventories
Increase(+)/ decrease(- ) of short-term receivables
is Increase(+)/ decrease(- ) of liquid assets
Increase(- )/ decrease (+)of short-tenn liabilities

~ CHANGE IN WORKING CAPITAL (A B C)

65
DuPont and the Leverage Equation
5.17 Momentum AB
Momentum AB reports the following financial information:

Total capital: SEK 10 million

Return on total capital (ROT): 10%
Liabilities: SEK 8 million
Average interest rate on liabilities: 4%
Acid test ratio: 1.1

a) What is the Equity ratio of the company?

b) What is the Return on Equity? (Tip: Use the Leverage Formula to calculate this)
c) Discuss the solution of the sub problem b. How can the formula be understood?

5.18 Fly Mutter

During the last fiscal year, the airline Fly Mutter had sales of SEK 225 million, no financial revenues, variable
costs of SEK 122 million, fixed costs (excl. interest costs) of SEK 81 million, total assets of SEK 204 million,
and an equity of SEK 46 million . The average interest rate on Fly Mutter's loans has been 7.0 % during the last
year.

a) Use the Du Pont chart to calculate the company's Return on total capital (ROT) .
b) Calculate the company's Return on equity (ROE).

The management of Fly Mutter is concerned that sales are declining. The CEO therefore wants to understand
how a 15 % reduction in sales would affect the company's profitability.

c) Calculate the company's Return on total capital (ROT) by introducing a sales decline of 15 % in the
calculation above.
d) Calculate the company's Return on equity (ROE) with the new conditions.

5.19 Tors truck

Thor's truck is a small company in the construction equipment industry. The previous year, there was a long
discussion between the CEO Tore Johansson and his auditor. The auditor perceived that Tore had too little
control over how the financial return is affected by Tore's invoicing.

Help Tore to calculate how the Return on equity is affected ifhe invoices 25 % more than last year. Last year
the net sales were SEK 1 235 426. The variable costs were SEK 875 434 and the fixed costs SEK 225 443 .
Originally, he deposited SEK 200 000 in the company, which since then has grown four times. Last year, Tor
paid on average 12 % in interest rate for the company ' s liabilities. The liabilities amount to SEK 200 000.

66
 Budgeting

6.1 True or false about budgeting

Please indicate whether the statements below are true or false. True False
A budget is a forecast of future financial events.
A cash budget is used to estimate future costs.
A material budget is an example of an investment budget.
Sub-budgets, among other things, provide input to main budgets.
Revised budget versions are developt,d periodically in order to take changed conditions
into account.
Budgets are used mostly to reward or control employees.
Depreciation is included in a cash budget.
Amortizations are not included in a budgeted income statement.
Liquid assets ( e.g. cash) in a cash budget increase if the company is offered a longer credit
period from its suppliers.
The profit in a budgeted income statement increases if the company offers its customers a
longer credit period.

67
6.2 Dubble Engineering AB
Eric and Tina have recently completed their engineering education and will early next year start a company
focused on selling and installing IT equipment. Shortly before the start in January 20X I, they compile the
information below. Help Eric and Tina to develop a budgeted income statement, a cash budget and a budgeted
balance sheet for 20\X. Use the charts. Disregard taxes and social security fees .

• Eric and Tina (the owners) each invest SEK 500 000 in the company. The money is deposited in the
bank account.
• The bank has promised a loan of SEK I 000 000 to be paid to the company at the beginning of the year .
• The interest rate of the loan is 6 % and the company needs to amortize SEK IO 000 at the end of the
first year.
• The rent for office space is SEK 12 000 per month, which is paid in advance through the bank account
on the first day of each month.
They plan to buy equipment for SEK I 500 000, which will be paid through the bank account. The
equipment is estimated to have an economic life of 10 years.
They estimate that sales will amount to SEK 2 000 000 in the first year. By the end of the year, Eric am
Tina estimate that customers have not yet paid SEK 200 000 of the invoiced sales.
They are estimating that the company will purchase goods for SEK 850 000 the first year. They need tc
pay these purchases in cash, i.e. directly through the bank account. By the end of the year, they estimat
that the company will have goods worth SEK 200 000 left in inventory.
In addition, they estimate miscellaneous costs, e.g. insurance, telecommunications, electricity, heating
and various office costs, amounting to SEK 85 000 for the first year. These expenses are paid directly
through the bank account.
• Eric and Tina each expect to take a salary of SEK 30 000 per month .

Budgeted Income Statement 20Xl

Revenues
Sales
Total revenues
Costs
Cost of goods sold
Salaries
Rent
Miscellaneous costs
Depreciation
Total costs
Operating profit/loss
Financial costs
Profit/loss after financial items

68
 Cash Budget 20Xl
Cash receipts
Owners' capital contribution
Bank loan
Received from customers
Total cash receipts
Payments
Amortization
Interest
Rent
Equipment
Purchase of goods
j
Miscellaneous
Salaries
e Total payments

Cash at the beginning of the year

Cash receipts(+)
Payments (- )
Cash at the end of the year

Bud2eted Balance Sheet December 31 20Xl

Assets Equity and liabilities
Equipment Equity
Inventories Bank loan
Accounts receivable
Liquid assets
Total Assets Total Equity and Liabilities

69
6.3 Electron AB
The engineers Afrooz and Afsoon are considering launching a trading company, which will sell accessories and
equipment to manufacturing plants. In order for the bank to grant them a loan, they need to compile a budget for
the first two years of operations. Your task is to help them make a budgeted income statement, a cash budget and
a budgeted balance sheet for the first two fiscal years (20X 1 and 20X2). Use the charts below to compile these
three budgets based on the information for each fiscal year. Exclude taxes and social security fees . (Round the
numbers.)

Year 20Xl
• Afrooz and Afsoon each invest SEK 500 000 in the company. The money is deposited in the bank account.
• The bank has promised a loan of SEK 500 000 to be paid to the company at the beginning of the year.
• The interest rate of the loan is 10 % and the company needs to amortize SEK 100 000 at the end of the first
year.
• Afrooz and Afsoon will rent office space and storage facilities for SEK 15 000 per month, to be paid in
advance through the bank account on the first day of each month .
• They plan to buy equipment for SEK 550 000, which is paid through the bank account. The equipment is
estimated to have an economic life of 5 years.
• They estimate that sales will amount to SEK 3 000 000 in the first year. They expect to give their customer
30 days of credit on average.
• They are estimating that the company will purchase goods for SEK 150 000 the first year. On average the
suppliers give a 14-day credit period.
• In addition they estimate miscellaneous costs, e.g. insurance, telecommunications, electricity, heating and
various office costs, amounting to SEK 35 000 for the first year. These expenses are paid directly through
the bank account.
By the end of the year, they estimate that the company will have goods worth SEK 140 000 left in
inventory.
• Afrooz and Afsoon each expect to take a salary of SEK 20 000 per month .

Budgeted Income Statement 20Xl

Revenues

Total revenues
Costs

Total costs
Operating profit/loss

Profit/loss after financial items

70
 Cash Budget 20Xl
Cash receipts

Total cash receipts

Payments

Total payments

Cash at the beginning of the year

Cash receipts(+)
Payments (- )
Cash at the end of the year

"'8d2eted Balance Sheet December 31 20Xl

Assets Equity and Liabilities

_Total Assets Total Equity and Liabilities

7[
Year 20X2
• Afrooz and Afsoon will continue to amortize SEK 100 000 on the bank loan and pay 10% interest at the
of the year.
• The rent for office space and storage facilities is still SEK 15 000 per month .
• They do not plan to buy any new equipment during the second year.
They expect sales to amount to SEK 3 500 000 the second year. They estimated that they have to give
customers 30 days of credit time on average.
Miscellaneous expenses will increase with SEK 10 000 compared to the first year. These expenses are p:
directly through the bank account.
• They expect to purchase goods for SEK 200 000 per month during the second year. Suppliers should nm
familiar with Afrooz and Afsoon and are expected to leave 30 days of credit time.
• At the end of the year they expect to have an inventory of goods worth SEK 190 000 kr .
• Afrooz and Afsoon each expect to take a salary of SEK 25 000 per month .

Bud2eted Income Statement 20Xl

Revenues

Total revenues
Costs

Total costs
Operating profit/ loss

Profit after financial items

72
 Cash Budl!et 20Xl
end
Cash receipts

1id

1v be Total cash receipts

Payments

Total payments

Cash at the beginning of the year

Cash receipts(+)
Payments (- )
Cash at the end of the year

Bud~eted Balance Sheet December 31 20Xl

Assets Equity and Liabilities

Total Assets Total Equity and Liabilities

73
6.4 Buckle Up AB
Buckle Up AB manufactures and sells advanced safety belts for exclusive car brands. During 20X I, the
company made efforts to consume both the component inventory and the finished goods inventory since they ar
introducing a new product generation in the beginning of 20X2. At the end of 20X 1, the company shows the
following balance sheet:

Balance Sheet December 31 20Xl (million SEK)

Assets and Liabilities
E ui ment 1 500 I 000
Com onent and finished oods inventories 0 Bank loan 820
Accounts receivable 450 Accounts a able 420
Li uid assets 550 Other short-term liabilities 260
Total Assets 2 500 Total E ui and Liabilities 2 500

Furthermore, the company makes the following projections for 20X2:

• Revenues: SEK 6 500 million
• Purchase of components: SEK 3 650 million
Salaries: SEK 1 850 million
Operating costs: SEK 75 million
Administration costs: SEK 50 million
Interest: SEK 120 million

a) Your task is to help the company to compile a budgeted income statement, a cash budget and a budgeted
balance sheet for next year. You should also take into account the following information for 20X2:

The company estimates that the accounts receivable will increase to SEK 510 million at the end of tt
year.
• It is also expected that accounts payables will increase to SEK 550 million at the end of the year.
Accounts payables only refer to purchase of components. The costs for salaries, operations and
administration are paid directly through the bank account.
Other short-term liabilities are expected to remain unchanged.
• The company expects to amortize SEK 95 million on the bank loan .
The shareholders want a dividend of SEK 250 million during the year.
The company will make investments in equipment of SEK 350 million.
Depreciation is estimated to SEK 200 million .
Component and finished goods inventories are estimated to SEK 150 million at the end of the year.

74
 Budgeted Income Statement 20X2 (million SEK)
Revenues
e

Total revenues
Costs

Total costs
Operating profit/loss

Profit after financial items

Cash Bud et 20X2 million SEK)

Cash recei ts

Total cash recei ts

Pa ments

of the ear

the ear

75
Bude:eted Balance Sheet December 31 20X2 (million SEK)
Assets Equity and Liabilities

Total Assets Total Equity and Liabilities

b) At the end of 20X2 data show that the outcome of some budget items differ from what was originally
budgeted. The company now needs your help to analyze the budget and identify these deviations. Use the
table below to compare the budgeted income statement (from problem a) with the outcome for 20X2 .
Calculate deviations in SEK and percent compared to the budget. Discuss what might have caused these
deviations .

Income Statement 20X2 Budget Outcome Deviation Deviation

(million SEK) million SEK) (million SEK (¾
Revenues
Sales 6 350
Total revenues 6 350
Costs
Cost of oods sold 3 810
Salaries I 500
costs 75
Administration costs 50
De reciation 175
Total costs 5 610
rofit/loss 740
Financial costs 90
Profit after financial items 650

76
Solutions

1.1 Johanna LargeKitchen AB

a) Cost
b) Expenditure
c) Income, Revenue
d) Receipt
e) Expenditure
f) Expenditure, Payment
g) Payment, Cost
h) Payment
i) Payment
j) Cost
k) None of the alternatives. Only "ordering" is usually not considered a business transaction . Commonly,
the expenditure is considered to arise when the invoice is received or at the time of order if payment is
done at the same time.

1.2 Axton AB

Year 3
Consumption:
Order Delivery Billing date Invoice Recording Payment
35 % of
received of invoice of invoice
components
16 March 15 May 18 May 20May 21 May 31 July 15May - 31 Dec
- - - Expenditure - Payment Cost
- - - SEK 60 000 - SEK 30 000 SEK 21 000

Year 4
Payment Consumption:
65 % of
components
31 Jan 1 Jan 31 Dec
Payment Cost
_!EK 30 000 SEK 39 000

77
1.3 Svar AB

a) TC= FC + VC/u * 9 <->

FC = TC 2 - VC/u * 9 2 = TC 1 - VC/U*91 <-> VC/u = (TC2 - TC1)/(92 - 91)
VC/u = (57 000 - 55 000)/(16 000 - 15 000) = SEK 2

b) FC = TC - VC/u * 9
Yid 9 = 15 000 units:
FC = 55 000 - (15 000 * 2) = SEK 25 000

1.4 Slagverken
a) FC = TC 2 - VC/u*9 2 = TC1 - VC/u*91 < - >
VC/u = (TC2 - TC1)/(92 - 91)
VC/u = (406 000 - 340 000)/(7 400 - 5 200) = SEK 30 per unit

b) FC = TC - VC/U*9 =
= 340 000 - (5 200 * 30) = SEK 184 000

c) These calculations are based on the assumptions that all variable costs are proportionally variable, that
all fixed costs are completely fixed, and that no changes except changes in volume (e.g. new machines
bought) have affected the costs between the two months.

1.5 Sakerheten AB
a) Break-even point (9c):
Total revenues (TR) = Total costs (TC)
<-> Price/u * 9c = FC + VC/u * 9c
<-> 9c = FC/(Price/u - VC/u) = 2 400 000/(30 - 22) = 300 000 units

b) Safety margin in units = 9R - 9c = 540 000 - 300 000 = 240 000 units

c) Safety margin in percentage = (9R - 9c)/9R= 240 000/540 000 = 44.4 %

1 .6 Jeansforetaget
a) Break-even ~ Total revenues (TR)= Total costs (TC)
Critical volume= Volume at Break-even= 9c
Real volume = 9R
TR = Price/u * 9c = 500 * 9c
TC = FC + VC/u * 9c
=> 9c = FC/(Price/u - VC/u) =
= 1 500 000/ (500 - 250) = 6 000 units

b) Critical revenue = Price/unit * 9c = 500 * 6 000 = SEK 3 000 000

c) Safety margin in % = (qR - 9c)/9R = (150 000 - 6 000) / 150 000 = 96 %

Safety margin in units = 9R - 9c = 150 000 - 6 000 = 144 000 units

d) Profit = (Price/u * 9) - (FC + VC/u * 9) =

= (500 * 150 000) - (1 500 000 + 250 * 150 000) = SEK 36 000 000

78
-
1. 7 Rorfast AB
a) FC = TC 2 - VC/u * q 2 = TC 1 - VC/u *q 1
<-> VC/u = (TC2 - TC,)/(q2 - q1)
VC/u = (450 000 - 441 000)/(48 000 - 46 200) = SEK 5 per unit

b) FC = TC - VC/u * q
At q = 48 000 units:
FC= 450 000 - (5*48 000) = SEK 210 000

1.8 Fasta Ror AB

a) TC = FC + VC/u * q
<-> FC = TC2 - VC/u * qz = TC 1- VC/u*q1 <-> VC/u = (TC 2 - TC 1)/(q2 - q 1)
VC/u = (I 930 000 - 1 630 000)/( 102 000 - 82 000) = SEK 15 per unit

b) TC= FC + VC/u * q <-> FC = TC - VC/u * q

For example: q = 82 000 units:
FC = 1 630 000 - (15 * 82 000) = SEK 400 000

c) Break-even point (qc):

Price/u * qc = FC + VC/u * qc <-> qc = FC/(Price/u - VC/u) = 400 000/(20 - 15) = 80 000 units

d) Safety margin in units = qR - qc = 102 000 - 80 000 = 22 000 units

Safety margin in percentage = (qR - qc)/qR = 22 000/ 102 000 = 22 %

1.9 Samsong AB
a) FC = TC2 - VC/u * q 2 = TC 1- VC/u*q, < - > VC/u = (TC 2 - TK 1)/(qz- q 1)

VC/u = ( 170 000 - 160 000)/( IO 000 - 8 000) = SEK 5 per unit

b) FC = TC 2 - VC/u * q 2 = 170 000 - (10 000 * 5) = SEK 120 000

c) Three main prerequisites for the calculation:

1. That all variable costs are proportionally variable
2. That all fixed costs are completely fixed
3. That no changes except in volume (e.g. salary increase) have affected the costs between the periods.

d) TC = FC + VC/u * qmarch =
= 120 000 + 5 *14 000 = SEK 190 000

79
1.10 Kroppsfixering

SEK

Total revenues

Total costs
8 200 000

Fixed revenues
5 000 000

--- -- -- --- Variable revenues

--- ---
--- -- -- ---
--- -- --- Volume

16 000

a) At the critical volume qc:

TR= TC <-> FR+ VR * qc = FC + VC/u * qc
VC/u = 0
=> qc = (FC - FR) I VR = (8 200 000 - 5 000*1 000)/200 = 16 000 visits

Can also be dete1mined by studying the break-even chart.

b) q that gives profit of SEK 400 000

TR = TC +Profit<-> FR+ VR * q = FC + Profit <->

<-> q = [(FC + Profit) - FR]/VR = [(8 200 000+400 000) - 5 000*1 000] / 200 = 18 000 visits

This can also be dete1mined by studying the break-even and noting as the difference between Total revenrn
and Total costs at volume 18 000 visits.

c) A volume of 800 sold annual passes gives q:

q = (FC - FR)/ VR = (8 200 000 - 5 000*800)/200 = 2 l 000 visits

9R = 20 000 visits, i.e. 1 000 visits below critical volume.

Profit for 2017 = - 1 000*200 = SEK -200 000 (i.e. a loss)

It can also be determined in the break-even chart by lowe1ing the line for Fixed revenues to SEK 4 000 001
The line for Total revenues follows and meets the line for Total costs at volume 21 000 visits

d) The variable costs for a gym visit are most likely close to zero. Examples of costs associated with an extra
visit are costs for hot water, toilet paper, a little wear of equipment etc. The assumption seems reasonable.

80
 1.11 Gnosjo mekatronik

Range Range Range Range

0-130 000 130 001-210 000 210 001-280 000 280 001-350 000
Variable manufacturing costs (SEK/unit) 30 30 30 30
Fixed manufacturing costs (SEK) 370 000 570 000 770000 770000
Fixed sales- and admin costs (SEK) 260 000 260 000 260 000 260 000
Extra advertising (SEK) 140 000 140 000 340 000
Commission to sales force (SEK) 0.1*price/unit 0.1 * price/unit O. l *price/unit 0.1 *price/unit
Revenues (SEK/unit) 40 40 40 40

a) Annual profit of SEK 320 000 is reached at volume = q units.

Profit = TR - TC = TR - (FC + VC/u*q)
This gives the following :

i) Range O - 130 000:

320 000= 40q - (630 000 + (30q + 0, I *40q)) = 6q - 630 000
=> q = 950 000/6 ;::: 158 333 7 lmpossible: outside the volume range O - 130 000 units

ii) Range 130 001 - 210 000:

320 000= 40q - (970 000 + (30q + 0,1*40q)) = 6q - 970 000
=> q = I 290 000/6 = 215 000 7 Impossible: outside volume range 130 001 - 210 000 units

iii) Range 210 00 I - 280 000:

320 000 = 40q - (I 170 000 + (30q + 0,1 *40q)) = 6q - I 170 000
=> q = I 490 000/6 = 248 333 7 Allowed: within volume range 210 001 - 280 000

iv) Range 280 00 I - 350 000:

320 000= 40q - (I 370 000 + (30q + 0, 1*40q)) = 6q - I 370 000
=> q = I 690 000/6 ;::: 281 667 7 Allowed: within volume range > 280 000

Answer: To achieve an annual profit of (exactly) SEK 320 000, a production volume of either 215 000
units or 248 333 units is needed. There are, thus, two solutions to the problem.
:s
b) Annual profit of SEK 2 050 000 at a volume of 310 000 units?
Price per unit = p
Profit = TR - TC = p*q - (FC + VC/u*q)

2 050 000 = p*310 000 - (770 000 + 260 000 + 340 000 + 0,1 *p*3 l0 000 + 30*310 000) =
= 279 OOOp - (770 000 + 260 000 + 340 000 + 9 300 000)

p = (2 050 000 + IO 670 000)/279 000 ;::: SEK 45 .60 per unit

~- Answer: In order to achieve an annual profit of SEK 2 050 000 at volume 310 000 units, the price
needs to be SEK 45.60 per unit.

81
1.12 Svarv & Slip AB

a)
Manual Semi- Fully
automatic automatic
Normal capacity units/h 800 1 200 2 400
FC/h (SEK) 600 1 200 2 000
VC/u (SEK) 4.00 2.00 0.40

Variable costs at production volumes over normal capacity:

Between O and 200 units over normal capacity (SEK/u) 8.00 4.00
Between 20 l and 400 units over normal capacity (SEK/u) 12.00 6.00

Lowest cost per unit occurs at maximum production volume for each alternative. This gives the following costs
per unit at maximum volume for each of the machines.

Manual
- --
Normal production (800 units/h):
TC/u = (FC + VC/u*q)/q = (600 + 800*4.00)/800 = SEK 4.75 per unit

200 units over normal production volume :

TC/u = (FC + VC/u*q)/q = (600 + 800 *4.00 + 200*8.0)/ 1 000 = SEK 5.40 per unit

400 units over normal production volume :

TC/u = (FC + VC/u*q)/q = (600 + 800 *4.00 + 200*8.0 + 200* 12.0)/ 1 200 = SEK 6.50 per unit

Semi-automatic (1 200 units/ht

Normal production:
TC/u = (FC + VC/u*q)/q = (1 200 + I 200*2.00)/l 200 = SEK 3.00 per unit

200 units over normal production volume:

TC/u = (FC + VC/u*q)/q = (1 200 + I 200*2.00 + 200*4.00)/l 400 ;:::; SEK 3.14 per unit

400 units over normal production volume:

TC/u = (FC + VC/u*q)/q = (1 200 + I 200*2.00 + 200*4.00 + 200*6.00)/l 600 = SEK 3.50 per unit

Fully automatic (2 400 units/ht

Normal production:
TC/u = (FC + VC/u*q)/q = (2 000 + 2 400 *0.40)/2 400 ;:::; SEK 1.23 per unit

82
b)
At what average production volume per hour is each of the three manufacturing methods most profitable?

Al low volumes, the manual machine is most profitable (because it has the lowest fixed costs), at higher volumes
the semi-automatic, and at even higher volumes the fully automatic. We will now calculate at what volumes the
semi-automatic and the fully automatic machines are cheaper to use.

Manual:
Maximum production volume for the manual machine should be used is the volume at which the cost per unit is
the same for manufacturing in the manual machine and in the semi-automatic machine (at n01mal volume for
each case).
600 + 4.00*q = l 200 + 2.00*q <->
q = 600/2.00 = 300 units

Semi-automatic:
Maximum production volume for the semi-automatic machine should be used is the volume at which the cost per
unit is the same for manufacturing in the semi-automatic machine and in the fully automatic machine (at nomrnl
volume for each case).
1 200 + 2.00*q= 2 000 + 0.40*q <->
q = 800/1.6 = 500 units

Fully automatic:
Consequently, the fully automatic machine should be used at production volumes exceeding 500 units per hour.

In summary :

• The manual machine should be used in the range: 0 - 300 units per hour
• The semi-automatic machine should be used in the range: 301 - 500 units per hour
• The fully automatic machine should be used in the range: 50 l - 2 000 units per hour

This is illustrated be by this diagram.

SEK/h
2 600--L
Manual ,/,,,/ / Semi -automatic
Fully automatic
2400-
_.-- ~;...-::.-- ...
__ __ _.-- - ---- / : Fully automatic
2 000-r-,-. ,c: _. _. _. _. - :,;;-~ __ -~ ______ . _. __ _·- __________. _·- _______ ___ ·- __ __ . ___. _______________ . __________ _

1600- _ / , / , .

/
1 200 ~--- -
I ! Semi-automatic
-----r-------t------------------------------------------------------------

Manual

Volume

200 400 600 800 1 000 1 200 1 400 1 600 1 800 2 000
+- lPE lE
Manual Semi-automatic Fully automatic
cheapest cheapest cheapest

13 Base Production International

a) Cost of p ro duction
· (CoP) per umt:
·

83
 CoP = dM + MO + dL + MgO =
= 200 + 50 + 300 + 330 = SEK 880/unit
b) The overhead charges are calculated as percentages of the overhead bases:

MO-charge= MO/dM = 50/200 = 25 %

MgO-charge = MgO/dL = 330/300 = l 10 %

c) Full cost per unit:

Full cost= CoP + AO + SO

AO= AO-charge* CoP =

= 0.1* 880 = SEK 88

SO = SO-charge* CoP =
= 0.3 * 880 = SEK 264

Full cost= 880 + 88 + 264 = SEK 1 232

1.14 Base Production, one more time

Please note that the answers are rounded (in SEK):
357
Direct material (dM) 89
Materials overhead (MO) 25 % of dM 411
Direct labor (dL) 452
Manufacturing overhead (MgO) I IO % of dL l 309
Cost of production (CoP)
131
Administrative overhead (AO) 10 % ofCoP 393
Sales overhead (SO) 30 % of CoP I 833
Full cost
2 200
Sales price (including 20 % profit margin added)

84
-
1.15 Katrineholms varmepumpar
Previous year (SEK) Current year (SEK)
Total Per unit Total Per unit
dM 2 400 000 5 000 1 600 000 5 000
dL 4 800 000 10 000 3 200 000 10 000
MgO-variable 2 400 000 5 000 1 600 000 5 000
MgO-fixed 2 400 000 5 000 2 400 000 7 500
SO-variable 240 000 500 160 000 500
SO-fixed 960 000 2 000 960 000 3 000
Full cost 13 200 000 27 500 9 920 000 31 000
Price 14 400 000 30 000 9 600 000 30 000
Profit I 200 000 2 500 - 320 000 - I 000

1.16 Savox AB

Budget
dM 140 000
MO 28 000
dL 40 000
MgO 88 000
CoP 296 000
AO 44 400
so 74 000
Full cost 414 400
Profit 41440
Sales 455 840

a) Full cost = SEK 414 400

b) MO charge = MO/dM = 28/ l 40 = 20 %

MgO charge = MgO/dL = 88/40 = 220 %
AO charge = AO/CoP = 44.4/296 = 15 %
SO charge= 74/296 = 25 %

c) This order:

dM 5 000
MO 0,2*5 000 I 000
dL 10 * 600 6 000
MgO 2.2 * 6 000 13 200
CoP 25 200
AO 0.15 * 25 200 3 780
so 0.25 * 25 200 6 300
Full cost 35 280
Profit 0.10 * 35 280 3 528
Price 38 808

d) The MgO charge should be studied and perhaps altered. A charge of as much as 220 % might lead to
incorrect decisions. Probably, the overhead is not so much linked to direct labor but to other costs, i.e. costs
for machinery or other equipment.

85
1.17 Spalktyr AB
a) The charges are most often calculated during the annual budget process. Then, the budgets for the different
parts of the costing system are summarized. How much of e.g. direct material and materials overhead are we
budgeting for the year? Based on this, the charges are calculated as overhead/direct cost ( or Cost of
production when applicable), e.g. total materials overhead divided with total direct material for the year.

b) The Full cost will be as follows (in SEK):

Total direct Material (dM/u* q) 480 * 100 48 000

Materials overhead (MO) 25 % of total. dM 12 000
Total direct Labor (dL/u*q) 200 * 10 * 100 200 000
Manufacturing overhead (MgO) 40 % of total dL 80 000
Other Direct manufacturing costs 10 000
Cost of production (CoP) 350 000
Administrative overhead (AO) 20 % ofCoP 70 000
Sales overhead (SO) 30 % ofCoP 105 000
Special direct sales costs 20 000
Full cost 545 000

The full cost for this order is SEK 545 000.

1.18 Tolknar AB
a) The full costing calculation looks as follows (in SEK):

dM 50 *3 000 150 000

MO 0.4 * dM 60 000
dL 16 * 4 * 3 000 192 000
MgO 1.0 * dL 192 000
Other direct manufacturing costs 56 000
CoP 650 000
AO 0.3 * CoP 195 000
so 0.4 * CoP 260 000
Other direct manufacturing costs 80 000
Full cost (total) I 185 000

Full cost for the order is SEK I 185 000 .

Full cost per unit is l 185 000/3 000 = SEK 395 per unit

b) A high charge for manufacturing overhead means that products that have a high cost of direct labor carry a
large proportion of the overhead. If the relation between the two is balanced this is not a problem, but if it is
not (if the products that use a large amount of labor hours do not use more of other production overhead
resources, e.g . machine time or production premises) it might lead to an incorrect calculation of the full cost.

86
1.19 Schyssta altaner AB
a) CoP = dM + dL + MO+ MgO =
= 2 400 000 + I 400 000 + I 008 000 + 476 000) = SEK 5 284 000

b) Full cost= CoP +AO + SO =

= 5 284 000 + I 849 400 + 528 400 = SEK 7 661 800

c) MgO charge= MgO/dL = 476 000/ 1 400 000 = 34 %

MO charge = MO/dM = l 008 000/2 400 000 = 42 %
AO charge = AO/CoP = I 849 400/5 284 000 = 35 %
SO charge = SO/CoP = 528 400/5 284 000 = l O %

d) Full cost for the order:

dM 42 000
MO 0.42 * dM = 17 640
dL 10 000
MgO 0.34* dL= 3 400
CoP 73 040

AO 0.35 * CoP = 25 564

so 0.10 * CoP = 7 304
Full cost SEK 105 908

e) The direct costs can be assumed to be specific costs for this order.
Specific cost = dL + dM = 42 000 + IO 000 = SEK 52 000

1.20 Sjavaler
a) Full cost for this order.

Direct material (dM) SEK l 750 * 20 units 35 000

Materials overhead (MO) 40 % * dM 14 000
Direct labor (dL) 2 hours * 250 SEK * 20 units IO 000
Manufacturing overhead (MgO) 80 % * dL 8 000
Other direct manufacturing costs 13 000
Cost of production (CoP) 80 000
Administrative overhead (AO) 25 % * CoP 20 000
Sales overhead (SO) 20 % * CoP 16 000
Special direct sales costs 5 000
Full cost 121 000

The full cost for this order of 20 sjaval is SEK 121 000

b) It should be Manufacturing overhead (MgO), since this overhead seems a bit high (80 %). This might lead
to incorrect distribution of costs since there are probably other costs related to manufacturing overhead that
are high. As an alternative, the company might use e.g. cost per machine hour as base instead of direct labor.

c) Contribution margin (CM) for the order = specific revenue - specific costs
Specific revenue= price= SEK 100 000
Specific cost= dL + dM + (special direct costs)

Contribution margin (CM) = 100 0000 - (35 000 + 10 000 + 13 000 + 5 000) = SEK 37 000

87
1.21 Traspecialisten
a) Determination of full cost per unit (in SEK):

Home
dM (8*25) 200
dL (3*250) 750
MgO (41 % of dL - see calculation below) 308
CoP 1 258

AO ( 10 % of CoP - see calculation below) 126

SO ( 17 % of CoP - see calculation below) 214
Full cost 1 598

Profit charge (20 %) 320

Price (lowest) I 918

Boss
dM (10*25) 250
dL (4*250) 1 000
MgO (41 % of dL - see calculation below) 410
CoP I 660

AO (IO% of CoP - see calculation below) 166

FO (17 % of CoP - see calculation below) 282
Full cost 2 108

Profit charge (20 %) 422

Price (lowest) 2 530

The overhead charges have been calculated in the following way:

MgO- charge= MgO/dL = (350 000 * 4)/[(3 000 * 3 * 250) + (I 200 * 4 * 250)] = 41 %
AO - charge= AO/CoP= (150 000 * 4)/ [(3 000 * I 258) + (I 200 * 1660)] = 10 %
SO - charge= SO/CoP = (250 000 * 4)/ [(3 000 * I 258) + ( I 200 * 1 660)] = 17 %

b) Should the company accept this order?

Manufacturing overhead (which according to the text consists of rent for facilities, depreciation, maintainance of
production equipment, electricity, heating etc.) should be considred a common cost, not a specific cost. The
specific cost if this order is accepted thus amounts to dM and dL. Calculation:
Direct material (dM) 200
Direct labor (dL) 900
Specific cost I 100

Contribution margin (CM)= specific revenue - specific cost= I 500 - 1 100 = SEK 400

Since the contribution margin is positive and the company has spare capacity, the order should be accepted.
Even if this order does not cover the full cost, it at least contributes to covering parts of the common costs. This
order might lead to future orders at the regular price. It is, however, important to point out that the company
should of course not use this price level continuously, since they will then not cover the costs for sales and
administration in the long run.

88
1.22 Reimbursement AB

Contribution margin per unit and total (if we assume that the variable costs are also specific costs for producing
this product):

CM/u = specific revenues - specific costs= Price/u - VC/u =

= 42 - 17 = SEK 25

TCM = CM/u * q =
= 25 * 96 000 = SEK 2 400 000

1.23 Choices AB
a) The company should accept orders B, C, D, E, G, H and I, since they provide a positive contribution margin,
i.e. higher specific revenues (price) than specific costs.

b) Information about the factors limiting the production and about how much of these resources each order
needs.

1.24 Stegus AB
Consultant 1 Consultant 2 Consultant 3
Specific revenues: 150 000 200 000 380 000
Specific costs: 175 000 150 000 200 000
Contribution margin (CM): - 25 000 50 000 180 000

Total contribution margin (TCM): 205 000

Common costs: - 100 000
Profit for the period: 105 000

1.25 Snickerier AB
Product group Chairs Product group Tables
Chair A Chair Skane Table A Table Edvard Persson
Specific revenues l 500 1 800 5 800 7 500
Specific costs 800 900 3 000 4 000
CM! (CM/u) 700 900 2 800 3 500
Units 137 98 35 20
CM2 (TCM/product) 95 900 88 200 98 000 70 000

Specific costs of the product groups 76 900 73 200

CM3 (TCM/product group) 107 200 94 800

Specific costs of the department 68 400

CM4 (TCM/department) 133 600

89
1.26 Narrow Focus
A B
Price/unit 150 210
Variable specific cost/unit -60 -110
CM/unit 90 100
kg/unit 2 2,5
CM/kg 90/2 = 45 100/2.5 = 40
Bottle neck: possible production volume 1500/2 = 750 1500/2.5 = 600
TCM/product 750 * 90 = 67 500 600 * 100 = 60 000

The company should produce 750 type A and O type B because that gives the highest total contribution margin.
The same conclusion can be drawn by analyzing the contribution margin per kg material (SEK 45/kg for type A
compared to SEK 40/kg for type B).

When 750 type A have been produced, there is no more material to produce either of the types.

1.27 Begrans AB
a) Calculate the contribution margin (CM) for each product.
Beg Rans
Specific revenue/unit 2 120 800
- Specific cost/unit 840 450
= CM/unit I 280 350

Labor hours/unit 4 I
Available labor hours 2 000/4 = 500 2 000/1 = 2 000
= TCM 500 * l 280 = 640 000 2 000 * 350 = 700 000

CM/hour l 280/4 = 320 350/1 = 350

The company should choose to manufacture 2 000 Rans since that gives the highest total contribution
margin (TCM). CM/hour is also lower for Beg.

b) TCMseg = CM/u * q = l 280 * 3 000 = SEK 3 840 000

TCMRens = CM/u * q = 350 * 3 000 = SEKI 050 000

The company should choose to manufacture 3 000 Beg since that gives the highest total contribution
margm.
Alternatively, CM/u can be analyzed (SEK l 280 for Beg and SEK 350 for Rans) since in this case
production volume is the limiting factor and is equal for both products.

c) In a situation when there is more than one limiting factor at the same time, e .g . both material and labor
hours.

90
1.28 Stringent AB
Bathroom Laundry Total
Price/unit (SEK) 340 180
S12ecific cost/unit (SEK} -220 -120
CM/unit (SEK) = 120 = 60

Material 1.2 kg/unit 0.5 kg/units 8 000 kg

Possible production volume
(total material/( material/unit)) 8 000/1.2 :::: 6 666 units 8 000/0,5 = 16 000 units

TCM
(volume*CM/unit) (SEK) 6 666* 120 = 799 920 16000*60 = 960 000
CM/bottle neck
(CM/unit)/(material/unit) (SEK) 120/ 1.2 = 100 60/0.5 = 120

Laundry halkis should be produced and sold under the name Universal halkis. This product gives the highest
total contribution margin (SEK 960 000 compared to SEK 799 920) and it gives the highest contribution
margin per kg material (SEK 120 compared to SEK 100).

1.29 HabroVink AB

Material is a bottleneck.
Habro Vink
Price/unit 1 000 800
Variable s12ecific cost/unit -300 -220
CM/u 700 580
CM/kg 700/2 = 350 580/1.45 = 400

Kg/unit 2 1.45
Possible production volume 29 000/2 = 14 500 29 000/ 1.45 = 20 000
Possible TCM 14 500 * 700 = 10 150 000 20 000 * 580 = 11 600 000

The company should manufacture 20 000 Vink and no Habro. The reason is that Vink has a larger contribution
margin/bottleneck than Habro (SEK 400 compared to SEK 350). Also, Vink gives a larger total contribution
margin than Habro (SEK 11600000 compared to SEK 10 150 000).

91
1.30 Bodyworks Ltd

In this case it is reasonable to assume that the variable costs are specific costs and that the fixed costs are
common costs.

Arms Legs Total unit

CM/unit (price - specific costs) 80 40 SEK

If machine hours are the bottleneck:

Available machine minutes (hours* 60) 30 000 mm
CM per machine minute 8 l SEK
Possible production volume 3 000 750 units
TCM/product (CM/u *q) 240 000 30 000 SEK

If material is bottleneck:
CM per kg material 40 80 SEK
Possible production volume 500 2 000 units
Possible TCM/product (CM/u * q) 40 000 80 000 SEK

a) If machine hours are the bottleneck: Arms should be produced, since this component has the highest
contribution margin per machine minute (SEK 8 compared to SEK I). The same conclusion can be drawn
by comparing the total contribution margins (SEK 24 000 for Arms and SEK 30 000 for legs).

b) If material is bottleneck: Legs should be produced, since this component has the highest contribution margin
per kg material (SEK 80 compared to SEK 40). The same conclusion can be drawn by comparing the total
contribution margins (SEK 80 000 compared to SEK 40 000).

c) If material is scarce, legs should primarily be manufactured (see b). 500 kg material is used for I 000 Legs
( I 000 * 0.5 kg). This means that there is 500 kg left. With this we can manufacture 250 legs (500/2). The
company should manufacture 1 000 Legs and 250 Arms.

d) Maybe the company must sell equal amounts of Arms and Legs? This could be the case if the customers
want arms and legs of the same type from the same supplier.

92
1.31 MacManagement AB

a) Total costs amounted to SEK 22 000 000 last year. Mac Management will have these costs no matter if the
consultants have client assignments or not. This means that total revenues during the year need to be at least
as large. Ifwe assume that the costs for the present year will be the same as for last year (SEK 22 000 000),
we can calculate the minimum price (or the cost) for a consultant hour. We assume that a working day is 8
hours. There are 11 consultants and 80 % of their time is actual billed time .

Total cost for a consultant hour = Total annual costs/Number of billed hours per year =
= 22 000 000 I (8 * 225 * 0.8 * 11) ;:::: SEK 1 389

To cover the full cost, MacManagement, needs to bill SEK I 389 per hour for the consultants this year. To
make a profit, they must, of course, bill more.

b) Since all consultants are occupied with other client assignments, i.e . they bill all their hours, we can assume
that total costs will be covered. (Of course, only if the billed hourly rate from a is achieved on average.) In
this case we should calculate the contribution margin before deciding weather to take the assignment or not.
We simply compare the specific revenues (SEK 900 per hour) with the specific costs. If the specific
revenues are higher than the specific costs, the contribution margin is positive and the assignment should be
accepted .

Since cost items such as facility rent, depreciation, electricity etc. are already covered (these are common
costs), we can assume that the specific costs are equal to the costs for salaries. The consultants make SEK
50 000 per month and the administrative staff make SEK 25 000. In this case, the consultants and staff
receive overtime compensation amounting to 100 % of their salary. MacManagament's cost for salaries are
thus salary plus overtime compensation plus social costs (amounting to 50 % of the salary incl. overtime
compensation). There are 4.2 weeks per month and 40 hours per work week.

Salary costs for this assignment:

11 consultants:
(50 000 + 25 000) * 2 = SEK 150 000 per consultant and month, i.e. SEK 1 650 000 per month
4 administrators :
(25 000 + 12 500) * 2 = SEK 75 000 per person and month, i.e. SEK 300 000 per month
Total salary cost: SEK I 950 000 per month
Average salary cost per hour = 1 950 000 / ( 15 * 4.2 * 40) ;:::: SEK 774 per hour

The specific cost for this assignment is thus SEK 774 per hour which is lower than the specific revenue,
SEK 900 per hour. The assignment should be accepted . (The company of course needs to carefully consider
the risk of rumor about the low price spreading, see c.)

c) In this case there is spare capacity among the consultants. This means we cannot use the same arguments as
in b) .

To begin with, MacManagement will cover the specific costs (including overtime compensation) at a price
per hour of SEK 900. But the full cost will not be covered. If MacManagement decides to accept the
assignment they run the risk of not being able to accept a future assignment at a higher price, because the
consultants will not be available. If MacManagement thinks there is a reasonable chance that new
assignments might come in the near future, then this assignment should not be accepted. If, on the other
hand, it is unlikely that a new assignment will come in, then this assignment should be accepted. It is better
to get SEK 900 per hour than to get nothing at all. And SEK 900 per hour certainly is enough to cover the
specific costs and to contribute to cover the common costs.

93
2.1 Introvert AB
r r r r r r r r

p p p p p p p p

01
RV
OI == SEK -1 000 000
r == SEK 500 000
p == SEK -250 000
RV == SEK-l 000 000
y == 8 years
i == 8 %

a) Net present value:

Npv == OI+ a* CPV[i %, y years]+ RV* PV[i %, y years]

Npv == - 1000000 + (500 000 - 250 000) * CPV(8 %, 8 years)-! 000 000 * PV(8 %, 8 years)==
== - 1000000 + 250 000 * 5,7466 - l 000 000 * 0,5403 :::o SEK - 104 000
This investment is not profitable.

b) Annuity
Ann== Npv*ANN [i %, y years]

Ann == - 104 000 * ANN[8 % , 8 years] == -104 000 * 0,1740 :::o SEK - 18 000
This investment is not profitable.

c) Pay-back time:
P== 01/a == l 000 000 / 250 000 == 4 years

d) Find the cost of capital interest rate that gives net present value == 0
==> Npv == - 1 000 000 + 250 000 * CPV[X % , 8 years] - l 000 000 * NPV[X % , 8 years]== 0

Try different factors in the interest tables.

At all cost of capital interest rates> 0 %, the net present value is < 0.

At cost of capital interest rate 0 % NUS[O % , 8 years] == 8 and NUV[O % , 8 years] == l

==> Npv == - l 000 000 + 250 000 * 8 - 1 000 000 * l == 0

Consequently, at cost of capital interest rate== 0, the net present value == 0, which means that the Internal rate
of return is 0 % . The same conclusion can be drawn by simply adding all receipts and all payments and then
note that these are equal The net present value is thus 0 at cost of capital interest rate O %.
Receipts== 500 * 8 == SEK 4 000 000
Payments == l 000 000 + 250 000 * 8 + l 000 000 == SEK 4 000 000

94
2.2 Nyinvest AB

r r r r r r r r r r

p p p p p p p p p p

RV

01

OI = SEK - 500 000

r = SEK 200 000
p = SEK -100 000
RV = SEK -200 000
y = 10 years
i=8%

a) Npv = OI +a* CPV[i %, y years]+ RV* PV[i %, y years]

Npv = -500 000 + (200 000 - 100 000) * CPV[8 %, 10 years] - 200 000 * PV [8 %, 10 years]=
= -500 000 + 100 000 * 6.7 IOI - 200 000 * 0.4632 ;:::: SEK 78 000

According to this method, this investment is profitable because the net present value is positive.
NB : The fact that the machine is depreciated with SEK 50 000 per year in the books does not affect the
investment calculation. A depreciation is a cost, not a payment, and only receipts and payments are
considered in an investment appraisal.

b) Pay-back time= OI/a = 500 000 / (200 000 - 100 000) = 5 years.
According to this method, this investment is not profitable because the pay -back time is longer than 3 years.

c) Try different interest rates until the net present value becomes zero.
Interest rate 13 %: Npv = -500 000 + 100 000 * 5.4262 - 200 000 * 0.2946;:::: SEK - 16 000
Interest rate 11 %: Npv = -500 000 + 100 000 * 5.8892 - 200 000 * 0.3522;:::: SEK 18 000
Interest rate 12 % Npv = -500 000 + 100 000 * 5.6502 - 200 000 * 0.3220;:::: SEK 1 000

Internal rate ofreturn (IRR) is approximately 12 %.

According to this method, this investment is profitable because the internal rate of return is higher than the
cost of capital interest rate (8 % ).

95
2.3 lnvesteringsprojektet

RV
a a a a ,'
'~ ,.. ,.. ,.. '

.-

01

01 = SEK - 2 370 000

a =SEK 545 000
RV = SEK 150 000
y = 5 years
i=5%
a) Npv = 01 +a* CPV [5%, 5_years] +RV* PV[5 %, 5 years]=

= - 2 370 000 + 545 000 * 4.3295 + 150 000 * 0 7835 ::::: SEK 107 103

b) Internal rate of return is the interest rate that gives NPV = 0.

=> 01 + a * CPV [l %, 5 years] +RV * PV[1 %, 5 years) =0

Iterative calculations:
Interest rate 6 %:
- 2 370 000 + 545 000 * CPV[6 %, 5 years]+ 150 000 * PV [6 %, 5 years]
= 545 000 * 4.2124 + 150 000 * 0.7473 ::::: SEK 37 853

Interest rate 7 %
-2 370 000 + 545 000 *CPV[7 %, 5 years] + 150 000 * PV[7 %, 5 years]=
= 545 000 * 4.1002 + 150 000 * 0 7130 ::::: SEK - 33 30 I
Conclusion: The internal rate of return is between 6 % and 7 %. Since the internal rate of return is
higher than the cost of capital interest rate, the investment is profitable.

c) The annuity of the investment= PV * ANN[5% , 5 years] = 107 102*0.2310 :=::: SEK 24 700

d) Pay-back time = OI /a = 2 370 000 / 545 000 :=::: 4.35 years

96
2.4 Maskininkopet
RV
r

p p p p p p p p

01

OI = SEK -140 000

r = SEK 100 000
p = SEK - 70 000
RV= SEK 25 000
y = 8 years
i = 15%

a) The cumulative present value for the annual payment surplus:

Cpv = (r + p) * CPV [15 %, 8 years] = (100 000 - 70 000) *4.4873 = SEK I 34 619

b) Net present value:

Npv = 01 +a* CPV [15 %, 8 years]+ RV* PV[l5 %, 8 years]=
= - 140 000 + 134 619 + 25 000 * 0.3269::::; SEK 2 792

c) Future value:
Fv= (OI + a* CPV[l5 %, 8 ar]) * FV[l5 % , 8 years]+ RV=
= (-140 000 + 30 000 * 4.4873) * 3.0590 + 25 000 ::::; SEK 8 540

As impler solution is to use the answer in b):

Fv = Npv*FV[l 5 %, 8 years]= 2 792 * 3.0590::::; SEK 8 541 (rounding error)

d) Annuity
Ann = ANN[l5 %, 8 years]* Npv = 0.2229 * 2 792 ::::; SEK 622

e) Pay-back time:
P =ova= 140 000/(100 000 - 70 000)::::; 4.7 years

f) Net present ratio:

Npr = Npv/OI = 2 792/140 000::::; 0.020

g) Annuity ratio:
Anr = Ann/OI = 622/ 140 000 ::::; 0.004

h) Since the net present value is positive, the internal rate of return is higher than the cost of capital discount
rate, 15 %. Since the annuity ratio is small, the internal rate of return is probably slightly above 15 % .

OI+ a* CPV[i %, 8 years]+ R V*PV[i %, 8 years]= 0

Consequently, start by trying i = 16 %:

-140 000 + 30 000 * 4.3436 + 25 000 * 0.305 = -2 067 => Smaller than 0
The internal rate of return is between 15 and 16 %.

97
2.5 Auto EI-Mekano
RV

01

Ol =SEK -446 400

r = SEK 94 560
RV= SEK 48 000
y = 8 years
i = 12 %
a) Original investment 01=-400000 - 26 400 - 20 000 = SEK -446 400
Payment surplus= decreased costs: a= 13 280 + 51 200 + 30 080 = SEK 94 560

Net present value:

Npv =or+ a* CPV ( i %, y years}+ RV* PV(i %, y years]=
=-446 400 + 94 560 * CPV (12 %, 8 years]+ 48 000 * PV(l2 %, 8 years]=
=-446 400 + 94 560 * 4,9676 + 48 000 * 0,4039;:::; SEK 42 723
Npv > 0. The investment is profitable.

b) Annuity:
Ann = 42 724 * ANN(12 %, 8 years] = 42 723 * 0,2013 ;:::; SEK 8 600
Ann> 0 The investment is profitable.

c) Find the interest rate that gives net present value== 0.

Npv =or+ a* CPV [i % , y years]+ RV* PV[i %, y years]=
== -446 400 + 94 560 * CPV[i %, 8 years]+ 48 000 * PV [i %, 8 years] = 0.

Use interest table for sum of NPV, row 8 years and try different interest rates:
i = 14 % ==> Npv;:::; SEK 9 083
i == 15 % ==> Npv;:::; SEK -6 390
The internal rate of return is between 14 and 15 %. This is higher than the cost of capital interest rate (12
%), i.e. the investment is profitable.

d) Pay-back time:
P = or/a == 446 400 / 94 560 ;:::; 4.7 years
Pay-back time is a an estimate of bow long it takes for an investment to "repay" itself. In order to dete1mine
weather this investment is profitable or not, the pay-back time needs to be compared with a pre-dete1mined
highest acceptable pay-back time that the company requires for investments of this type.

98
2.6 Falsetterna
r r r r

RVr

p p p p p
RVp

01

OI = SEK ---620 000

r (year l -4) = SEK 320 000
r (year 5) = SEK l 50 000
p = SEK - 80 000
RVr = SEK 10000
RV p = SEK ---60 000
y = 5 years
i= 12%

a) Npv =or+ a * CPV [ i %, y years ! + RV* PV[i %, y years l

RV = SEK l O000 - 60 000 = - 50 000
a 1_4 = SEK 320 000 - 80 000 = 240 000
a5 = SEK 150 000 - 80 000 = 70 000

Npv =or+ a 1_4 * CPV[ 12 %, 4 years]+ (a 5 +RV) * PV[ 12 %, 5 years]=

= ---620 000 + 240 000 * 3.0373 + (70 000 - 50 000) * 0 5674 :::::: SEK 120 000
The net present value is positive which indicates that the company should make the investment

b) Ann = Npv *ANN[l2 %, 5 years] = 120 000 * 0.2774 :::::: SEK 33 000
The amrnity is positive which indicates that the company should make the investment.

c) P= OJ/a= 620 000 / 240 000:::::: 2. 6, i.e. between two and three years.
The pay-back time is lower than three years which indicates that the company should make the investment.

d) The net present value is positive at the cost of capital interest rate ( 12 %), which means that it will become
even larger (more positive) as the interest rate is decreased. This means that the internal rate ofretum (IRR)
must be higher than 8 %, which indicates that the company should make the investment.

99
2.7 Supportsvarv
We choose to use the annuity method because alternative "Lease" is already an annuity and the calculations are

therefore facilitated.

RV
Alternative Buy

OI

01 = SEK - 840 000

RV= SEK 150 000
y = 10 years
i= 10 %

> Alternative Lease

or= o
p=-12* 12=SEK-144000
RV=O
y = 10 years
i = 10%

Npv = 01 +a* CPV [i %, y years)+ RV* PV[i %, y years]

Ann= Npv *ANN[i %, y years]

Annuity
Npv = 01for " Alternative
+a* CPV [10 Buy"
% , 10 years] + RV* PV[lO %, 10 years] = - 840 000 + 0 + 150 000 * 0.3855 -::::,-782

000
Ann= Npv *ANN[ IO%, 10 years] = -782 000 * 0 1627 -;:::, SEK - 127 000

Annuity for " Alternative Lease''

This alternative is an annuity.
Ann = SEK - l44 000
The best option is to buy the machine, since it has the highest annuity. The net present value method would have

given the same answer.

100
2.8 WingMuttern AB

RV
a a a a a Purchase new jet aircraft

01

01 = SEK - 3 400 000

a = SEK I 000 000
RV = SEK 500 000
y = 5 years
i= 10%

a a a a a Keep old propeller aircraft

ttttt >

a= SEK 100 000

RV= SEK 0
y = 5 years
i= 10%

Net present value= 01 +a* CPV [i %, y years] +RV * PV[i % , y years]

Purchase new jet aircraft

Net present value = - 3 400 000 + I 000 000 * CPV[ 10 %, 5 years] + 500 000 * PV(lO %, 5 yearsJ =
= - 3 400 000 + I 000 000 *3.7908 + 500 000 * 0.6209 = SEK 70 I 250

Keep old propeller aircraft

Net present value= I 00 000 * CPV[ 10 %, 5 years] = 100 000 * 3. 7908 = SEK 379 080

The company should invest in a new jet aircraft.

IOI
2.9 Linnea eller Oscar
aaaaaaaaaa
Linnea

01

01 = SEK -45 000

a= SEK 12 000
R=0
y = 10 years
i = 15 %

aaaaaaaaaa
Oscar

01

01 = SEK - 11 0 000
a = SEK 20 000
R=0
y = 10 years
i = IS %
Npv = 01 +a* CPV [i %, 10 years)+ RV* PV[i % , 10 years)

a) = 0: Npv = -45 000 + 12 000 * CPV[0 %, l 0 years} * + O* PV[O %, 10 yearsl =

rLinnea:

= -45 000 + 12 000 * 10 = SEK 75 000

Oscar· Npv = -110 000 + 20 000 * CPV[0 %, 10 years} = -\ 10 000 + 20 000 * 10 = SEK 90 000

Choose alternative Oscar, since this option has the highest net present value and is larger than 0.

b) rLinnea:
= l5%: Npv = -45 000 +12 000 * CPV[lS %, 10 years)= -45 000 + 12 000 * 5.0188;:::; SEK IS 200
Oscar: Npv = - 110 000 + 20 000 * CPV[\S %, 10 years] -110 000 + 20 000*5.0188;:::; SEK -9 600

Choose alternative Linnea, since this option has the highest net present value and is larger than 0. Oscar is

not profitable at this cost of capital interest rate.

102
c) Interest rate that gives the same net present value for the two alternatives:

OIL + aL * CPV [i %, 10 years]= 01 0 + a 0 * CPV[i %, 10 years]=

-> CPV[i %, IO years) = (Oio - Oh)/(aL - a 0 ) = ( 110 000 - 45 000)/(20 000 - 12 000) =
= 65 000/8 000 = 8.125

The interest table gives the cumulative present value factor for 10 years and 4 % is 8.1 11, i.e. very close to
8.125. Thus, Linnea and Oscar are equally profitable at a cost of capital discount rate of ::::: 4 %. With lower
cost of capital interest rates than ::::: 4 %, Oscar will be most profitable and at higher cost of capital interest
rates than ::::: 4 % Linnea will be most profitable.

d) Internal rates of return:

Linnea:
or+ a* CPV[ i %, 10 years]= - 45 000 + 12 000 * CPV[i %, 10 years]= 0
=> CPV = 3.75
From table Sum ofNPV, 10 years:=> The internal rate of return is higher than 20 %, probably 23 - 24 %.

Oscar:
- 110 000 + 20 000 * CPV[i %, 10 years] = 0
=> CPV = 5.5
From table Sum ofNPV, l 0 years: => The internal rate of return is between 12 and 13 %.

Linnea is most profitable, since this option has the highest internal rate ofreturn (IRR) .

103
2.10 Marginalen AB

Machine A

p p p p p p

01
G = SEK-100 000
r= SEK 80 000
p = SEK -30 000
RV= SEK 5 000
y = 6 years
i = 20 %

RV

Machine B

p p p p p p p p p p

01

01=SEK-140000
r= SEK 90 000
p = SEK-40 000
RV = SEK l 5 000
y = \0years
i = 20 %

a) Since the two alternatives have different economic Jives we have to use the annuity method
Npv= 01 +a* CPV [i % , y years]+ RV* PV[i %, , y years]
Annuity = Npv* ANN [i % , y years]

Machine A value = - 100 000 + (80 000 - 30 000) * CPV[20 % , 6 years)+ 5 000 PV * [20 %, 6 years] =
Net present
= - 100 000 + 50 000 * 3.3255 + 5000 * 0.3349 ;:::: SEK 67 950
Annuity= 67 950 * ANN[20 %, 6 years] = 67 950 * 0 3007 ;:::: SEK 20 433

Machine B value = - 140 000 + (90 000- 40 000)

Net present * CPV[20 % , 10 years) + 15 000 * PV[20 %, 10 years)=
= - 140 000 + 50 000 * 4 I 925 + 15 000 * 0. 1615 ;:::: SEK 72 048
Annuity = 72 048 * ANN[20 %, 10 years] = 72 048 * 0.2385 ;:::: SEK 17 183

Both alternatives are profitable according to the annuity method Machine A is the most profitable

alternative.

104
b) Pay-back time:
PA= Olla= l 00 0001(80 000 - 30 000) = 2.0 years
Pe= Olla= 140 0001(90 000 - 40 000) = 2.8 years

Machine A is the best alternative according to the pay-back method. However, we can not say if the
alternatives are profitable since we do not know the acceptable pay-back time that the company has
specified for this type of investment.

2.11 Altern AB
RV
rrrrrr r

Alternative A

ppppppp

OI

OI = SEK -1050000
r = SEK 420 000
p = SEK -200 000
RV = SEK 150 000
y = 7 years
i =7%

RV
r r r r r r r r
Alternative B

Ppppppppp

01

Ol =SEK- I 430 000

r = SE K 420 000
p = SEK - 140 000
RV = SEK 220 000
y = 9 years
i=7%

105
a) Lathe A - net present value
Net present value== 01 +a* CPV [i %, y years]+ RV* PV[i %, y years]:
NpvA == -1 050 + 220 * CPV[7 %, 7 years]+ 150 * PV[7%, 7 years]==
== -1050000 + 220 000 * 5.3893 + 150 000 * 0.6227 == SEK 229 051

b) Lathe A- annuity
AnnA== Npv A * ANN [7 %, 7 years] == 229 051 * 0 , 1856::::; SEK 42 512

c) Lathe B - net present value:

Net present value== 01 +a* CPV [i %, y years)+ RV* PV[i %, y years]:
Npv 8 == - 1 430 000 + 280 000 * CPV[7 %, 9 years]+ 220 000 * PV[7%, 9 years]==
== == -1 430 000 + 280 000 * 6.5152 + 220 000 * 0.5439 == SEK 513 914

d) Lathe B - annuity:
Ann8 == Npv 8 * ANN [7 % , 9 years]== 513 914 * 0. 1535::::; SEK 78 886

e) Lathe Bis the most profitable alternative (it has the highest annuity). The net present value method cannot
be used since the alternatives have different economic lives.

2.·i2 In My Pocket

Old machine
p p p p p

01

01 == SEK - 350 000

p == - 50 - 70 == SEK - 120 000
RV ==O
y == 5 years
i == 15 %

RV

New machine

p p p p p p p p p p

01

OI == SEK -850 000

p == -25 - 35 == SEK -60 000
RV == SEK 150 000
y == 10 years
i == 15 %

Alternative Old machine

106
Npv0 = OI +a* CPV [15 %, 5 years])+ RV* PV [15 %, 5 years]=
= -350 000 - 120 000 * CPV[l5%, 5 years]+ 0 * PV[l5%, 5 years]
= -350 000 -120 000 * 3,3522:::::: SEK-752 000

Ann= Npv0 *ANN[l5 %, 5 years]= -752 000 * 0,2983:::::: SEK -224 000

Alternative New machine:

NpvN = OI+ a* CPV[l5 %, 10 years]+ RV* PV[l5%, 10 years]=
= -850 000 - 60 000 * CPV[l 5 %, l0 years]+ 150 000 * PV[ l 5%, 10 years]
= -850 000 -60 000 * 5,0188 + 150 000 * 0,2472:::::: SEK -1 114 000

Ann= NpvN * ANN[15 %, 10 years]= - l 114 000 * 0,1993:::::: SEK -222 000

Invest in a new machine because the annuity is higher for this alternative (SEK -222 000 compared to
SEK -224 000). However, it should be noted that the difference between the two alternatives is very small.

2.13 Rigid AB

r r r r r r

Machine A

p p p

01

OI = SEK - 100 000

r = SEK 70 000
p = SEK -30 000
RV=0
y = 6 years
RV
r

Machine B

p p p p p p p p p p

01

107
OI = SEK - 200 000
r = SEK 100 000
p 1= SEK -17 000
P2-10= SEK-27 000
RV= SEK 20 000
y = 10 years

a) Machine A
P = O1/a = 100 000 /(70 000 - 20 000- 10 000) = 2.5
The pay-back time for machine A is 2.5 years.

Machine B
Year 1: a = 100 000 - 17 000 = SEK 83 000
Years 2 and so on: a = 100 000 - 17 000 - 10 000 = SEK 73 000

After two years: a 1 + a 2 = 83 000 + 73 000 = SEK 156 000, i.e. SEK 44 000 left until the original investment
has been repaid. 44 000 I 73 000 ;::; 0.6 => 60 % of the payment surplus year 3.

The pay-back time for machine B is 2.6 years.

Conclusion: Both alternatives fulfill the company's criterion of a 3 year pay-back time.

b) When ranking the alternatives it is not recommended to use only the pay-back method since this method
does not take into count how the payments are distributed over time or what happens after the pay-back
time . Since the machines have different economic lives, the annuity method should be used.

Npv = OI + a* CPV[20 %, 6 years]

Ann= Npv*ANN[20 %, 6 years]

Machine A
NpvA = - 100 000 + (70 000 - 20 000 - 10 000) * CPV[20 %, 6 years] = - 100 000 + 40 000 * 3.3255 ;::;
;::; SEK 33 000
AnnA= 33 000 * 0.3007 ;::; SEK 9 900

Machine B
Npv 8 = OI + a 1*PV[20%, I year]+a2*PV[20%, 2 years]+ .. .. + (a 10+RV)*PV[20%, 10 years] =
= - 200 000 + ( 100 000 - 17 000)*0.8333 + ( 100 000 - 17 000 - 10 000)*0.6944 + .. . +
+ ( 100 000 - 17 000 - 10 000 + 20 000)*0. l 6 l 5 =
= SEK 117 600 (see table below)

Ann 8 = 117 600 * ANN[20 %, 10 years] = 117 600 * 0.2385 ;::; SEK 28 000 thousand (see table, rounding
error)

108
 Machine B
Year Annual payment Factor Total
surplus (SEK) (SEK)
0 -200 000 -200 000
I 83 000 0.8333 69 164
2 73 000 0.6944 50 691
3 73 000 0.5787 42 245
4 73 000 0.4823 35 208
5 73 000 0.4019 29 339
6 73 000 0.3349 24 448
7 73 000 0.2791 20 374
8 73 000 0.2326 16 980
9 73 000 0.1938 14 147
10 93 000 0.1615 15 020
Net present value (total) 117616
Annuity 117616 0.2385 28 051

This way of calculating is easy to understand but perhaps a bit laborious.

Alternative:
Solve the problem by calculating the net present value of the payment surplus year I and the net present value of
the residual value year IO using the factors PV[20 %, I year] and PY [20 %, IO year]. Then calculate the "net
present value" year I of the payment surplus year 2-10 using the factor ANN[20%, 9 years]. Calculate the net
present value of this amount by using the factor PV[20%, I year]. Finally, add that amount to the original
investment, the net present value of the payment surplus year I and the net present value of the residual value
year 10. Finally, calculate the annuity.

Conclusion: Choose alternative B because its annuity is larger (SEK 28 000 compared to SEK 9 900).

109
2.14 Extrudern
RV

Alternative I: Purchase

p p p p p p p

OI

01 = SEK - 1 700000
p = SEK-100 000
RV = SEK 400 000
y = 7 years
i = 15%

rrrrrrr
Alternative !I: Rent

p p p p p p

Ot=0
p = SEK -500 000
RV = 0
y = 7 years
i= 15%

RV
Alternative lll: Rent/Purchase

p p p p

p pp

01

01 = SEK -1 400000
p year 1-3 = SEK -500 000
p year 4-7 = SEK - 100 000
RV = SEK 400 000
y = 7 years
i = 15°/4,

l lO
a) Alternative I: Purchase machine
Npv =or+ a* CPV [ i %, y years]+ RV* PV[i %, y years]

Npv 1 = - 1 700 000 + (- 100 000 * CPV[l 5 %, 7 years]) + 400 000 * PV[ 15 %, 7 years]
= -l 700 000 - 100 000 * 4.1604 + 400 000 * 0.3759 ;:::; SEK - I 966 000

Alternative II: Rent machine

Npv 11 =a* CPV[i %, y years]

Npvu = -500 000 * CPV[l5 %, 7 years]= -500 000 * 4.1604 ;:::; SEK - 2 080 000

Alternative III: Rent/Buy machine

a1 = a2 = a3 = - 370 000 - 80 000 - 50 000 = SEK - 500 000
or (year 4) = SEK-I 400 000
a4 = a5 = a6 = a 7 = - 80 000 - 20 000 = SEK -100 000

Npvm =a1 *CPV[l 5 %, 3 years]+ Ol*PV[l 5 %, 3 years]+ a4 * (CPV[l 5%, 7 years] - CPV[l 5%, 3
years])+ RV*PV[l5 %, 7years] =
= - 500 000 * CPV[l5 %, 3 years] + (- 1400000 * PV[l5 %, 3 years])+
(- 100 000 * (CPV[l5 %, 7 years] - CPV[l5 %, 3 years])+ 400 000 * PV[l5 %, 7 years]=
= - 500 000 * 2.2832 - I 400 000 * 0.6575 - l 00 000 * (4.1604 - 2.2832) + 400 000 * 0.3759 ;:::;
;:::; SEK - 2 099 000

The company should choose alternative I because that gives the highest net present value.

b) The residual value of the Extruder is RV :

Npv1 = Npvu

OI1 + a1* [15 %, 7 years] + RV* PV[l5 %, 7 years]= Npvu

- I 700 000 - 100 000 * 4. 1604 + RV* 0.3759 = - 2 080 000

=> RV = (I 700 000 - 2 080 000 + 416 040)/0.3759 ;:::; SEK 96 000

If the residual value of the extruder is SEK 96 000, alternative I (purchase) and alternative II (rent) become
equally profitable.

11 l
2.15 Space suppliers

RV
aaaaaaaaa a

01

OI = SEK - l 000 thousand

a = SEK 200 thousand
y = 10 years
i= 18%
RV= SEK 150
a) Npv = 01 +a* CPV (i %, y years)+ RV* PV(i %, y years]

Npv= -1000000+ 200 000 * CPV(\8 %, 10 years)+ lSO 000 * PV(\8 %, 10 years)
= -1 000 000 + 200 000 * 4 4 94 l + l 50 000 * 0. I 91 l ::::; SEK - 7 3 000

This investment is not profitable

b) Which annual payment surplus gives profitability?

-1000000 +a* CPV(l8 %, tO years)+ lSO 000 * PV(\8 %, 10 years] = 0
-1000000 +a* 4,494l + 150 000 * O,l9l l = 0
=>a::::; SEK 216 000
An annual payment surplus of more than SEK 216 000 is needed for the investment lo become profitable

c) At what economic life is the investment profitable?

-1 000 000 + 200 000 * CPV(l8 % , y years)+ l SO 000 * PV[18 %, y years) = 0

Use the interest table to iterate:

y = 10 years: Npv::::; SEK -73 000 (see above)
y = 14 years - l 000 000 + 200 000 * 5.008 l + l SO 000 * 0.0985 ::::; SEK 16 400
y = 13 years: -l 000 000 + 200 000 * 4.9095 + l 50 000 * 0 l 163 ::::; SEK -660
If the economic life is increased to a little over l3 years the investment is profitable.

d) At what cost of capital interest rate is the investment profitable?

-1000000 + 200 000 * CPV[i %, 10 years)+ ISO 000 * PV[i % , 10 years)= 0

Use the interest table to iterate:

i = 18 % Npv ::::; SEK - 73 000 (see above)
i = 17 % : Npv = - 1 000 000 + 200 000 * 4.6586 + ISO 000 * 0 2080 ::::; SEK - 37 000
i = 16 % Npv = - l 000 000 +200 000 * 4.8332 + 150 000 * 0 2267 ::::; SEK 600

If the cost of capital interest rate is decreased to approximately 16 %, the investment is profitable.

l 12
3.1 Income/Expenditure, Receipt/Payment, Revenue/Cost?
a) Expenditure and payment
b) Expenditure
c) Payment
d) Cost
e) Expenditure and payment
t) Expenditure and payment
g) Cost
h) Payment
i) Income and revenue
j) Receipt
k) Payment and cost
1) Cost
m) Expenditure and cost
n) Payment
o) Income and revenue
p) Payment

3.2 Basic concepts

Business Transactions A L/E [ E

a) A loan is taken, received in cash D C
b)Fuel is purchased, paid in cash C D
c) A consultancy service purchased, paid in cash C D
d) A consultancy service sold, paid in cash D C
e) Amortization on a loan C D
t) Interest on a loan, paid in cash C D
g) A machine is purchased, paid in cash C,D
h) A car is purchased, paid in cash C,D
i) Rent for factory premises, paid in cash C D
j) The owner of a company deposits cash as start-up capital D C
k) Salary to employees, paid in cash C D
1) Transfer of money between two of the company's
bank accounts C,D
m) Insurance premium is paid, from the bank account C D
n) The bank pays interest for the past year D C

113
3.3 Keeping books

Debet SEK 100 000

a) Bank account SEK 100 000
Credit
Equity SEK 50 000
Debit
b) Cash (in hand) SEK 50 000
Credit
Bank Account SEK 10 000
Debit
c) Inventory SEK 10 000
Credit
Bank Account SEK 5 000
Debit
d) Salaries SEK 5 000
Credit
Bank Account SEK 2 000
Debet
e) Electricity SEK 2 000
Credit
Cash SEK 30 000
Debit
f) Inventory SEK 30 000
Credit
Accounts payable SEK40 000
Debet
g) Bank Account SEK40 000
Credit
Sales income SEK 20 000
Accounts receivable Debet
h) SEK 20 000
Credit
Sales income SEK 30 000
Accounts payable Debet
i) SEK 30 000
Credit
Cash in hand SEK 20 000
Debit
j) Bank account SEK 20 000
Accounts receivable Credit

l 14
3.4 Auto Emission Software

Bank Accounts payable

b) 12 210 a) 16 540 g) 14 380 c) 14 380
f) 2 430 d) 2 670
g) 14 380

Accounts receivable Sales

e) 23 780 b) 12 210
e) 23 780
f) 2 430

Purchase of goods
a) 16 540
c) 14 380
d) 2 670

115
I
3.5 Bojen Ltd

Equipment Accounts payable

v431 27 040 V 434 26 400 V 431 27 040
V 443 43720 V 435 1460
V 439 5 379
V 440 22 300
V 441 34150

Accounts receivable Sales

v433 23 780 V 437 34 260 V 433 23 780
v438 41 640 V 444 24 280 V 438 41640

Bank account B Purchase of goods

V 437 34 260 V 432 13 200 V 440 22 300
V 444 24 280 V 434 26 400
V 443 43 720

Bank account A Advertising

V436 80 v441 34150
v442 310

Telecom Office supplies

V 435 1460 v436 80
v442 310

Electricity Rent
V 439 5 379 v432 13 200

11 6
3.6 Klasses akeri
a) and b)

Bank Equity
OB 75 a) Operations 16 OB 25
c) Tp . Income 70 b) Operations 7 g) Cash 2
d) Salaries 48 CB 23
e) Interest exp 3
f) Operations 5 Total 25 Total 25
g) Equity 2
CB 64
Total 145 Total 145

Operational expenditures Liabilities

a) Cash 16 OB 50
b) Cash 7
f) Cash 5 CB 50
IS 28
Total 50 Total 50
Total 28 Total 28

Salaries
d) Cash 48 Transport income
c) Cash 70

IS 48 IS 70

Total 48 Total 48
Total 70 Total 70

Interest expenditures
e) Cash 3

IS 3

Total 3 Total 3

Account Debit Credit

Bank 145 81
Liabilities 50
Equity 2 25
Operational exp. 28
Salaries 48
Interest exp. 3
Transport income 70
Total 226 226

All numbers in thousand SEK

c)
Bank balance at the end of the year = Closing balance of bank account = 145 - 81 = SEK 64 thousand

Income = Transport income = SEK 70 thousand

Expenditures = Operational exp. + Salary exp. + interest exp. = 28 + 48 + 3 = SEK 79 thousand
Profit for the year: SEK - 9 thousand

I 17
3.7 Performania AB
ASSETS LIABILITIES & EQUITY
Equipment Equity
e) 57 000 CB 72 000 a) 1460 000
f) 15 000 CB 1460 000
1460 000 1460 000
72 000 72 000

Computer network Liabilities

h) 517 000 g) 10000 b) 875 000
CB 517 000 CB 865 000
875 000 875 000
517 000 517 000

Bank account B Accounts payable

a) 1460 000 e) 57 000 i) 523 000 c) 523 000
h) 517 000 CB 15 000 f) 15 000
538 000 538 000
CB 886 000

1460 000 1460 000

Bank account A
b) 875 000 d) 125 000
g) 10 000
i) 523 000
CB 217 000
875 000 875 000

Cars Computers
c) 523 000 CB 523 000 d) 125 000 CB 125 000

523 000 523 000 125 000 125 000

Balance Sheet
Computer network 517 000 Equity 1460 000
Equipment 72 000 Liabilities 865 000
Cars 523 000 Accounts payable 15 000
Computers 125 000
Bank account B 886 000
Bank account A 217 000
2 340 000 2 340 000

118
3.8 Lasse's fashion studio

Cash (in hand) Accounts payable

a) 12 750 b) 326 c) 1400
f) 13 080 d) 110 h) 830
j) 12 950 e) 860
g) 640 CB 2 230
i) 3 240
CB 33 604
38 780 38 780 2 230 2 230

Office supplies Sales

b) 326 a) 12 750
f) 13 080
j) 12 950
IS 326 IS 38 780

326 326 38 780 38 780

Telecom
g) 640
Purchase of material
c) 1400
IS 640 d) 110
h) 830
IS 2 340
640 640 2 340 2 340

Rent
i) 3 240

IS 3 240

3 240 3 240

Income Statement
Purchase of material 2 340 Sales 38 780
Insurances Rent 3 240
e) 860 Insurance 860
Telecom 640
Office supplies 326
IS 860 Profit 31374

860 860 38 780 38 780

Alternative calculation of the profit for January (SEK).

Sales +38 780

Material 2 340
Rent 3 240
Office supplies 966
Other costs (insurance) 860
Total costs -7 406

Profit +31374

119
3.9 Aspekten

Assets Liabilities & Equities

Cash (in hand) Equity
OB 18 000 4) 10 000 OB 38 000
1) 25 000 CB 33 000
CB 38 000

43 000 43 000
38 000 38 000

Bank Loans
OB 40 000 5) 5 000 5) 5 000 OB 30 000

CB 35 000 CB 25 000

40 000 40000
30 000 30 000

Accounts receivable Accounts payable

OB 20 000 OB 10 000
3) 12 000 2) 18 000
CB 32 000 CB 28 000

32 000 32 000 28 000 28 000

Expenditures Income
Purchase of goods Sales
2) 18 000 1) 25 000
4) 10 000 3) 12 000
IS 37 000
IS 28 000
37 000 37 000
28 000 28 000

Balance sheet (BS) Year 20X2 Income Statement (IS) 20X2

Cash 33 000 Equity 38 000 Purchase of goods 28 000 Sales 37 000
Bank 35 000 Profit of the year 9 000
Accounts rec. 32 000 Loans 25 000 Profit of the year 9 000
Accounts payablE 28 000
37 000 37 000
100 000 100 000

120
3.10 Kallqvist Consulting Ltd

ASSETS LIABILITIES/EQUITY
Equipment Equity
d) 30 000 a) 200 000
CB 30 000 CB 200 000
200 000 200 000
30 000 30 000

Bank account B Loans

b) 100 000 e) 3 000 c) 80000
f) 60 000 CB 157 000 CB 80 000
80 000 80000
160 000 160 000

INCOME
Bank account A Sales
a) 200 000 b) 100 000 f) 60 000
c) 80000 d) 30000 IS 60000
g) 2 000 60 000 60000
h) 80 000
CB 68 000

280 000 280 000

EXPENDITURES
Salaries Income statement (IS)
h) 80000 Salaries 80 000 Sales 60000
Advertising 3 000
IS 80 000 Interests 2 000
Loss 25 000
80000 80 000

85 000 85 000

Advertising Balance Sheet (BS) Dec 31

e) 3 000 Equipment 30000 Equity 200 000
IS 3 000 Bank account B 157 000 Loss -25 000
3 000 3 000 Bank account A 68 000 Loans 80 000

255 000 255 000

Interest expenditures
g) 2 000
IS 2 000
2 000 2 000

121
3.11 Sara's Courier Services Ltd

ASSETS LIABILITIES & EQUITY

Bank Equity
a) so 000 c) 40000 a) so 000
b) 60 000 d) 3 000 CB so 000
h) 280 000 e) 5 000 so 000 50000
f) 6 000
g) 1000
i) 240 000
CB 95 000
390 000 390 000

Electric scooters Bank loans

c) 40 000 j) 4000 b) 60000
CB 36 000 CB 60 000
60 000 60000
40000 40000

EXPENDITURES INCOME

Salaries Sales
i) 240 000 h) 280 000
IS 240 000 IS 280 000
240 000 240 000 280 000 280 000

Consumables, office
d) 3 000
IS 3 000

3 000 3 000

Depreciations
j) 4000
IS 4 000
4 000 4 000 Income Statement (IS)
Salaries 240 000 Sales 280 000
Fuel (electricity) Consumables, office 3 000
e) 5 000 Depreciations 4 000
IS 5 000 Fuel 5 000
5 000 5 000 Maint. & insurance 6 000
Interest expenditure 1000
Maintenance & insurances Profit of the year 21000
f) 6 000 280 000 280 000
IS 6 000
6 000 6 000
Balance Sheet (BS)
Interest expenditures Bank 95 000 Equity so 000
g) 1000 Electric scooters 36 000 Profit of the year 21000
IS 1000 Loans 60 000
1000 1000 131000 131000

122
3.12 Pacioli & Co Ltd

ASSETS LIABILITIES & EQUITY

:r
Bank account B Equity
a) 25 c) 24 k) 25
b) 30 d) 20 CB
f) 84 e) 7,5
g) 5 25 25
h) 12
i) 3,6 Bank loan

'f
j) 2,7 30
k) 15 CB
CB 49,2
139 139
30 30

Bank account A
c) 24
I) 1,2
CB 25,2
25,2 25,2

Equipment INCOME
d) 20 m) 6
CB 14 Sales
84
20 20 IS
841'
84
1

84
EXPENDITURES

Office supplies Interest income

e)

'·'l,s
7,5
7,5
7,5
IS ,.,r
1,2
1,2

1,2

Advertising
g)

Js 5

Rent Income statement

h) Office supplies 7,5 Sales 84
12 Rent 12 Interest income 1,2
"115
12 12 Interest exp . 2,7
Adverti sing 5
Telecom and mail Telecom & mail 3,6
i)
3,61,s 3,6
Depreciation
Annual profit
6
48,4
3,6 3,6
85,2 85,2

Interest expenditures
j)
2,7115 2,7 Balance Sheet
2,7 2,7 Bank account B 49,2 Equity 10
Bank account A 25,2 Annual profit 48,4
Depreciations Equipment 14 Bank loan 30

l
m)
6

6 88,4 88,4

123
3.13 Measure Gadget Ltd

ASSETS LIABILITIES & EQUITY

Bank account A Equity
a) Equity 200 000 g) Maintanence 4000 a) Bank account A 2!
c) Bankl loan 50000 h) Account payable 30000
x) Interest revenues 3 000 j) Office supply 1000 CB 200 000
k) Account payable 110 000 200 000 21
q) Marketing 7 000
t) Telecom & mail 5 000 Bank loan
w) Bank loan 5 000 w) Bank account A 5 000 c) Bank account A
w) Interest costs 3 000
y) Salaries 30 000 CB 45 000
CB 58 000 so 000
253 000 253 000

Bank account B
b) Adv paym., cust 90 000 i) Telecom & mail 2 000
e) Accounts receivable 90 000 I) Interest costs 3 000 Accounts payable
n) Accounts receivable 60000 r) Maintanence 5 000 h) Bank account A 30 000 d) Machine leasing
o) Accounts receivable 350 000 s) Account payable 30000 k) Bank account A 110 000 f) Raw mtrl & goods
u) Office supplies 1000 s) Bank account B 30 000 m) Machine leasing
v) Account payable 360 000 v) Bank account B 360 000 p) Raw mtrl & goods
y) Social security 12 000 CB 0
CB 177 000 530 000
590 000 590 000

Acounts receivable Advance payments from customer

e) Sales 150 000 e) Bank account B 90000 b) Bank account B
o) Sales 375 000 n) Bank account B 60000 CB 90 000
o) Sales 175 000 o) Bank account B 350 000 90 000
CB 200 000
700 000 700 000

EXPENDITURES INCOME

Office supplies Telecom & mail Sales

j) Bank account A 1000 i) Bank account B 2 000 e) Accounts receivable
u) Bank account B 1000 IS 2 000 t) Bank account A 5 000 15 7 000 o) Accounts receivable
2 000 2 000 7 000 7 000 15 700 000 o) Accounts receivable

700 000

Machine leasing Salaries Interest revenues

d) Accounts payable 30000 y) Bank account A 30 000 x) Bank account A
m) Accounts payable 30 000 IS 60 000 15 30 000 IS 3 000
60000 60 000 3 000
30 000 30000

Raw materials and goods Social security Income statement

f) Accounts payable 110000 y) Bank account B 12 000 Salaries 30 000 Sales
p) Accounts payable 360 000 IS 12 000 Social security 12 000 Interest revenues
15 470 000 Machine leasing 60000
470 000 470 000 12 000 12 000 Office supplies 2 000
Raw mtrl & goods 470 000
Maintanence Marketing Maintanence 9000
g) Bank account A 4000 q) Bank account A 7 000 Telecom & mail 7000
r) Bank account B 5 000 IS 7 000 Marketing 7000

9 000
IS
- -9000
--
9000
7000 7 000 Interest costs
Profit for the year
6000
100 000
703 000
Interest costs
I) Bank account B 3 000
w) Bank account A 3 000 Balance sheet
IS 6000 Bank account A 58 000 Equity
6000 6000 Bank account B 177 000 Profit for the year
Accounts receivable 200 000 Bank loan
Accounts payable
-----!Adv. payment, custo
435 000

124
 3.14 lnkluMomsson Ltd
AVAT rate of 25 % means that the sales amount is increased by 25 %. Consequently, the VAT constitutes 20 %
of the total amount of sales. " Including VAT" means that the VAT is included in the price. "Excluding VAT"
means that VAT is not included.

"Input VAT" is the VAT that the company pays when goods, etc. are purchased. Input VAT is an asset because
the tax authority owes the company this amount of money.

"Output VAT" is the VAT that the company acquires when products and services are sold. Output VAT is a
liability because the company owes the tax authority this amount of money.

a)
Accounts receivable Accounts payable
b) 37 200 h) 23 780 g) 15 400 a) 26 600
e) 23 780 j) 2 430 i) 2 600 c) 15 400
f) 2 430 I) 37 200 k) 26 600 d) 2 600

go.1 Sales Purchase of goods

b) 29 760 a) 21280
90 e) 19 024 c) 12 320
f) 1944 d) 2 080

J
~
I
Output VAT Input VAT
00 b) 7 440 a) 5 320
e) 4 756 c) 3 080
f) 486 d) 520

Bank account A Bank account B

h) 23 780 i) 2 600 j) 2 430 g) 15 400
I) 37 200 k) 26 600

b)
Total input VAT = SEK 8 920
Total output VAT = SEK 12 682
VAT balance = 12 682 - 8 920 = SEK 3 762, a liability to be paid to the Tax authority.
Don't use 'a)' etc for both levels of sub-questions - instead call the two main questions 1) and 2).

125
3.15 ExkluMomsson Ltd
A VAT rate of 25 % means that the sales amount is increased by 25%. Consequently, the VAT constitutes 20 %
of the total amount of sales. "Including VAT" means that the VAT is included in the price. "Excluding VAT"
means that VAT is not included.

"Input VAT" is the VAT that the company pays when goods, etc. are purchased. Input VAT is an asset because
the tax authority ows the company this amount of money.

"Output VAT" is the VAT that the company acquires when products and services are sold. Output VAT is a
liability because the company ows the tax authority this amount of money.

a)
Accounts receivable Accounts payable
b) 73 625 h) 6 875 g) 7 800 a) 16 775
e) 6 875 j) 24 875 i) 9 150 c) 7 800
f) 24 875 I) 73 625 k) 16 775 d) 9 150

Sales Purchase of goods

b) 58 900 a) 13 420
e) 5 500 c) 6 240
f) 19 900 d) 7 320

Output VAT Input VAT

b) 14 725 a) 3 355
e) 1375 c) 1560
f) 4 975 d) 1830

Bank account A Bank account B

j) 24 875 g) 7 800 h) 6 875 i) 9 150
I) 73 625 k) 16 775

b)
Total input VAT = SEK 6 745
Total output VAT= SEK 21 075
VAT balance= 21 075 - 6 745 = SEK 14 330, a liability to be paid to the Tax authority.

126
4.1 Alfabetica AB
Net sales 7 200
Costs for raw materials and consumables -3 400
Costs for salaries and employee benefits -893
Other operating costs - 1 500
Operating profit before depreciation 1 407
Other operational revenues* 550 (capital gains from selling real estate)
Depreciation -177 (according to plan plan, 45+ 132)
Operating profit after depreciation 1 780
Financial revenues 64 (interest revenues)
Financial costs - 154 (interest costs)
Profit after financial items 1 690
Extraordinary revenues/costs 0
Profit before appropriations and tax I 690
Appropriations -90 (57+33)
Profit before tax 1 600
Tax - 352 1 600*0,22
Annual profit 1 248

* As an alternative, capital gains on buildings can be recorded as an extraordinary expense. Which of the
alternatives that is correct depends on the nature of the company's business.

4.2 LastMinute Ltd

Assets Equity & Liabilities
Fixed assets Equity
Machinery and equipment 5 212 Share capital 2 400
Long-term receivables 400 Balance brought forward 400
5 612 Annual profit ill
3 412
Current assets
Inventories 1 640 Untaxed reserves
Accounts receivable 990 Tax allocation reserve 650
Bank balances 870 Accumulated additional depreciations 420
3 500 I 070
liabilities
Bank loans 3 550
Accounts payable 920
Current tax liabilities 160
4 630

Total Assets 9 112 Total Equity & Liabilities 9112

127
 4.3 Lagergren & Partners AB
Balance Sheet
Assets Equity & Liabilities
Fixed Assets Equity
Equipment 30 Share capital 180
Long-term receivables 150 Balanced brought forward 30
Current assets Annual profit 82
Inventories 300 Untaxed reserves 105
Accounts receivable 75 Non-current liabilities 142
Bank 15 Current liabilities
Cash 82 Advance payments from customers 60
Accounts payable 30
Current tax liability 23
Total Assets 652 Total Equity & Liabilities 652

Income statement
Net sales 1072.5
Operating cocts -750
Operating profit before depreciation 322.5
Depreciation according to plan -60
Operating profit after depreciation 262.5
Interest revenues 7.5
Interest costs -15
Profit after financial items 255
Appropriations -150
Profit before tax 105
Tax -23
Annual profit 82

4.4 Deduction AB
The main depreciation rule (30 %-rule) gives the lowest residual values for years 1 - 3, but the additional
depreciation rule (20 %-rule) gives the lowest residual values for years 4 - 5. The lowest residual value at the end
of year 5 is SEK 70 000. See calculations below.

Year Purchases Sales 30%-rule 20%-rule Opening Lowest resi-

Residual value Depreciation Residual value Depreciation Balance {OB) dual value (CB)
1 300 000 0 210 000 [300*0. 7] 90 000 240 000 [300'0.8] 210 000
2 100 000 0 217 000 [(2 10+100)*0.7] 93 000 260 000 [100*0.8+300*0.6] 210 000 217 000

3 25 000 0 169 400 [(217+25)*0. 7) 72 600 200 000 [25*0.8+100'0.6+ 217 000 169 400
300*0.4)
4 0 0 118 580 [(169.4+0)*0.7] 115 000 [0*0.8+25*0.6+ 54 400 169 400 115 000
100*0.4+300'0.2]
5 50000 0 115 500 [(115+50)'0.7] 70 000 [50*0.8+0*0.6+ 45 000 115 000 70 000
25 '0.4+ 100*0.2]

128
 4.5 LowValue Ltd
The main depreciation rule (30 %-rule) gives the lowest residual value every year. The residual value in year 4 is
SEK 213 710, and the depreciation for year 4 is SEK 91 590. Note that the machine B, which is purchased and
sold during the same year, is not taken into account.

Year Machine Purchase Sales Machine 30%-rule Depree- 20%-rule Depree- Opening Lowest resid·
Residual value itation Residual value itation balance (OB) ual value (CB)
A 100 000 0 70000 [100'0.7] 30000 80 000 [100*0,8] 70000
2 C 400 000 0 319 000 [(70+400)'0. 7] 141 000 380 000 [400*0,8+100*0,6) 70000 329 000
3 D 250000 0 405 300 [1329+250)*0,7] 173 700 480 000 [2 50*0,8+400'0,6 329 000 405 300
+100*0.4]
4 100 000 200 000 C 113 710 [(405.3+100· 91590 250 000 [l00*0,8+250*0.6 405 300 213 710
200)'0.7] +0*0.4+100"0.2 ]

4.6 ORAB
The computer that was bought on March 15 , 20X5, is not included, since its economic life is too short (under
one year). Consequently, the sum of investments for year 20X5 is 200 000 + 80 000 = SEK 280 000.

Purchases and sales

Year Purchase Sales Purchased year Purchased value Comments
20XO 620 000
20Xl 480 000
20X2 710 000
20X3 500 000
20X4 325 000
20X5 25 000 20X4 25000
20X5 z&eOO Carried as an expense directly
20X5 200 000
20X5 80000
Total 20X5 280 000 25 000

20X5 30%-rule 20%-rule

Opening balance 1 300 000
Purchased during the year 280 000
Sold during the year 25 000
Lowest value 1 088 500 [(1300+280-25)*0, 7) 746 000 [280*0.8+(325-25)*0,6+500*0.4+ 710*0.2]

Thus, the 20 %-rule gives the lowest value (closig balance) of the machines for 20X5: SEK 746 000.

129
4. 7 Depreciations at Trebla

20Xl 30%-rule 20%-rule

OB 0 210 000 [300*0.7] 240 000 [300*0.8]
Purchases during the year 300 000
CB (lowest value as recorded in the books) 210 000
Depreciations as recorded in the books 90000
Depreciations acc. to plan 60 000 (purchased Xl)*0.2
Additional depreciations 30000
Accumulated depreciations ace.to plan 60000
Accumulated additional depreciations 30000

20X2
OB 210 000 203 000 [(210+80)*0.7] 244 000 [80*0.8+300*0.6]
Purchases during the year 80 000
CB (lowest value as recorded in the books) 203 000
Depreciations as recorded in the books 87 000
Depreciations acc. to plan 76 000 (purchased Xl +X2)*0.2
Additional depreciations 11000
Accumulated depreciations ace.to plan 136 000
Accumulated additional depreciations 41000

20X3
OB 203 000 212 100 [[203+100)*0.7] 248 000 [l00*0.8+80*0.6+300*0.4]
Purchases during the year 100 000
CB (lowest value as recorded in the books) 212 100
Depreciations as recorded in the books 90 900
Depreciations acc. to plan 96 000 (purchased Xl +X2+X3)*0.2
Additional depreciations -5100
Accumulated depreciations ace.to plan 232 000
Accumulated additional depreciations 35 900

20X4
OB 212 100 183 470 [(212.1+50)*0.7] 192 000 [50*0.8+100*0.6+80*0.4+300*0.2]
Purchases during the year 50 000
CB (lowest value as recorded in the books) 183 470
Depreciations as recorded in the books 78 630
Depreciations acc. to plan 106 000 (purchased Xl+X2+X3+X4)*0.2
Additional depreciations -27 370
Accumulated depreciations ace.to plan 338 000
Accumulated additional depreciations 8 530

20X5
OB 183 470 233 429 [183.47+150)*0.7] 206 000 [150*0.8+50*0.6+100*0.4+80*0.2]
Purchases during the year 150 000
CB (lowest value as recorded in the books) 206 000
Depreciations as recorded in the books 127 470
Depreciations acc. to plan 1~: ~ (purchased Xl+X2+X 3+X4+X5)*0.2
Additional depreciations
1
Accumulated depreciations ace.to plan 474 000
Accumulated additional depreciations 0

130
4.8 Ohm Consulting AB
Income Statement - by nature of expense (thousand SEK)
Net sales (operating revenues) 9 650
Costs for salaries and employee benefits - 3 100
Other external costs -3 723
Operating profit before depreciation 2 827
Depreciation - 550
Operating profit after depreciation 2 277
Financial revenues 253
Financial costs - 180
Profit after financial items 2 350
Extraordinary costs - 92
Profit before appropriations and tax 2 258
Appropriations - 565 (alloc. to tax alloc. reserve: 2 258*0,25)
Profit before tax 1 693
Tax -372 (I 693*0,22)
Annual profit 1 321

(Numbers rounded to thousand SEK.)

4.9 Tax allocations reserves

a) Profit before appropriations and taxes: SEK 1 680 000.
Possible allocation to tax allocation reserves is 25 % of the Profit before appropriations and taxes=
0.25 * l 680 000 = SEK 420 000

b) Allocation to tax allocation reserve is the last thing that happens in the income statement before the
corporate tax is calculated. Thus, the additional depreciations need to be established before the
allocations to tax allocation reserves. See calculation in the table (amounts in SEK thousands).

Profit before aooropriations and taxes 6 960

Additional deprec iations -760
Profit for the year before tax 6 200
Allocations to tax allocations reserves (25 %) 1 550

c) The existing tax allocation reserve (SEK 365 000) is six years old and must be dissolved at the same
time as the new allocation to tax allocations reserve can be made. Maximum allocation to tax allocation
reserve will be SEK 835 000. See calculation in the table (amounts in thousands SEK):

20Xl 20X2 20X3 20X4 20X5 20X6 20X7

Allocation to tax allocation reserve 365 0 0 0 0 0
OB tax allocation reserve 0 365 365 365 365 365 365
Profit before appropriations and taxes 2 975
Dissolution of tax allocation reserve 0 0 0 0 0 0 365
Profit for the year before tax 3 340
Allocation to tax allocation reserve (25 %) 835
CB tax allocation reserve 365 365 365 365 365 365 835

131
4.10 Consultme AB
To solve the problem, we must decide how much the profit needs to be adjusted by making allocation to or
resolution of the tax allocation reserve. Consequently, first, calculate the desired profit before tax. Thereafter,
calculate the difference between the desired profit before tax and calculated profit before tax. This difference
indicates the size of the changes of tax allocation reserve that must be done. Then calculate the possible changes
of the allocation reserve that are allowed for each year. See calculations below. The figures are rounded off to
whole thousands. Maximum allowed allocation to the tax allaction reserve is 25 % of the profit before
allocations to and resolution of the tax allocation reserves and before taxes. Corporate tax is 22 % of the profit
after allocations to the tax allocation reserve.

Result (see table below) :

Year l , Year 2 and Year 3:
Possible allocations to tax allocations reserve are not enough to reduce the annual profit to the required level.

Year 4 :
Possible resolution of tax allocation reserves is not enough to increase the annual profit to the required level.

Year 5:
Possible allocations to the tax allocations reserve are sufficient to reduce the annual profit to the desired level.

Year 1 Year 2 Year 3 Year 4 Year 5

Calculated profit before allocation to tax
allocation reserve and tax 420 600 -56 220 256
Targeted profit after tax 150 150 150 150 150

Targeted profit before tax 192 192 192 192 192

Targeted adjustment by change in tax
allocation reserve -228 -408 248 -28 -64

Possible allocations 105 150 0 55 64

Possible dissolution 105 255 0 55

Possible minimum profit before tax 315 450 -56 165 192
Possible maximum profit before tax 420 705 199 220 311

OB tax allocation reserve 0 105 255 0 55

Change in tax allocation reserve for the year 105 150 -255 55 64
CB tax allocation reserve 105 255 0 55 119

Targeted profit before tax 192 192 192 192 192

Possible profit before tax 315 450 199 165 192
Difference (possible-targeted) 123 258 7 -27 0

13 2
4.11 Balansakten AB
a) Acid test ratio= (Current assets - Inventories - Prepaid expenses) / Current liabilities=
= (I 200 - 400)/1 300 ;::; 0.62

b) Current ratio= Current assets/ Current liabilities= I 200 /I 300 ;::; 0.92

c) Equityratios:
Equity ratio l and Equity ratio 2 are the same, since we have no information about untaxed reserves.
Equity ratio= Equity / Total capital= 500/3 000;::; 0.17

d) As a rule of thumb, the acid test ratio should not be smaller than 1. Thus, it seems to be lower than
desirable in this case. In order to make a more thourough analysis of the acid test ratio and of the
current ratio you, among other things, need to know the terms of payment of the current assets and
current liabilities.

e) In order to assess the equity ratio, you need to know the equity ratios in the past (for example during the
last five years) and the equity ratios of the closest competitors.

4.12 Nycklab
a) Acid test ratio = (Current assets - Inventory - Prepaid expenses) / Current liabilities =
= (I 400 - 700)/800;::; 0.88

b) Current ratio= Current assets / Current liabilities = I 400/800 = 1. 75

c) Equity ratio I and Equity ratio 2 are the same, we have no information on untaxed reserves.
Equity ratio = Equity / Total capital = 900/3 600 = 0.25

d) Acid test ratio and current ratio measure the company's payment ability in the short run; is the company
able to pay its bills on time? The acid test ratio is the better measure of this. A rule of thumb is that the
acid test ratio should be bigger than I.

The equity ratio measures the ability to survive in the long run; does the company manage the
competitive situation in relation to its competitors?

133
4.13 Skakis AB
a) Current ratio= Current assets / Current liabilities= (100 + 50 + 75)/150 = 1.5.
This ratio indicates the company's ability to pay its liabilities in a short-term perspective. A rule of thumb
sometimes used is that the current ratio should be >2.

b) Debt/Equity ratio (D/E) =Liabilities + Untaxed reserves * tax rate / Equity=

= (60 + 150 + 0)/(300 + 15) ~ 0.67.
The Debt/Equity ratio (0/E) indicates the financial risk of the company.

c) Acid test ratio= (Current assets - Inventory - Prepaid expenses) / Current liabilities=
= (50 + 75)/150 ~ 0.83.
The acid test ratio indicates the company's ability to pay its liabilities in the short-term. Since inventories
often are difficult to sell quickly in a crisis situation, the acid test ratio is often regarded as a better measure
than the current ratio (see above). A rule of thumb is that the acid test ratio should be > l.

d) Equity ratio 1* = Adjusted equity / Total capital = (Equity + Untaxed reserver*0,78) / Total capital
Equity ratio 2 = Risk-bearing equity / Total capital= (Equity + Untaxed reserves)/ Total capital
The equity ratios are the same since the company does not have any untaxed reserves.
* With tax rate 22 %

Equity ratio= (300+ 15)/525 = 0.60

The equity ratio indicates the company's ability to survive in the long run. A higher percentage of equity
means more risk-bearing capital.

e) We cannot say much about the company's financial status from the figures above. For that, we need to know
more about the company's history and about its competitors. The only reliable rule of thumb we have here is
for the acid test ratio, which should be higher than I, if the company has the same payment agreements with
its customers, as with its suppliers. Consequently, if that is the case, the acid test ratio is a little bit too low.

4.14 DEBAB and FEBAB

a) Profit margin = (Profit after financial revenues and costs) / Turnover=

= (Profit after financial revenues and costs) / Sales

Profit margin DEBAB = (850 + 500 - 150)/5 000 = 24.0 %

Profit margin FEBAB = (600 + 250 - 200)/8 000 ~ 8.1 %

b) Capital turnover rate = Turnover / Total capital = Sales / Total capital

Capital turnover rateoEBAB = 5 000/2 000 = 2.5 times/year

Capital turnover rateFEBAB = 8 000/1 600 = 5.0 times/year

c) ROT= Profit after financial revenues I Total capital

ROT DEBAB = (850 + 500)/2 000 ~ 67.5 %

ROTFEBAB = (600 + 250)/1600 ~ 53 .1 %

The calculations show that the two companies have similar return on total capital, but achieve this by
different means; DEBAB by a high profit margin (they earn much per dollar in sales), FEBAB by a high
capital turnover rate (they have a "high pace" in their operations).

134
4.15 Analyser
a) ROT= Profit after financial revenues I Total capital = [Here: average total capital] =
= (2 250 + 60)/( (8 810 + I I 090)/2) ::::: 23 %

ROE =Profit after financial revenues and costs / Adjusted equity=

= Profit after financial revenues and costs / ((Equity+ Untaxed reserves*(! - 0,22)) =
= [Here: average adjusted equity]:
Year2 Year I
Equity 4 633 3 960
Untaxed reserves * (1-0.22) I 750*0.78 1450*0.78
Adjusted equity= 5 998 5 091

Tax not considered: ROE= 2 050/((5 998 +5 091)/2)::::: 37 %

Tax considered: ROE= 2 050*0.78/((5 998+5 091)/2) = 29 %

b) Return requirements:
The return on equity (ROE) should have the highest target. The equity is the risk bearing capital and
therefore not prioritized, which means that the owners are the first to lose their money at e.g. bankruptcy.
Consequently, the target for return on equity should be higher than the target for return on total capital
(ROT).

c) Profit margin= Profit after financial revenues and costs / Turnover = 2 050/24 400 ::::: 8.4%

d) Acid test ratio = (Current assets - Inventories - Prepaid expenses) / Current liabilities:

Acid test ratio year I = (900 + I 260)/( I I 00) ::::: 1.96 > I Good
Acid test ratio year 2 = (1 000 + I 400)/(1 322 + 385) ::::: 1.41 > 1 Good

e) Current ratio= Current assets / Current liabilities=

Current ratio year 1 = (1 220 +480 + 900+ 1 260)/(1 100) ::::: 3.51 > 2 Likely very good
Current ratio year 2 = ( I 520 + 480 + 1 000 + I 400)/( 1 322 + 385) ::::: 2.58 > 2 Likely Good

f) Equity ratio I = Adjusted equity / Total capital:

Equity ratio I year I =(( 1 900+ 1 088+972) + 1 450*( I - 0.22))/ 8810 ::::: 0.58
Equity ratio I year 2 =(( 1 900+ 1 386+ l 365)+ 1 750*( 1 - 0.22))/11090 ::::: 0.54

g) Working capital (WC) = Current assets - Current liabilities

WC year 1
(1 220 + 480 + 900 + 1 260) - (1 100) = SEK 2 760 000

WC year 2
(I 520 + 480 + 1 000 + l 400) - (1 322 + 385) = SEK 2 693 000

Change in WC= WC 2 - WC 1: 2 693 -2 760 = SEK-67 000

h) [nvestments in fixed assets:

Investments = Fixed assets, year 2 - Fixed assets, year 1 + Depreciations acc. to plan, year 2 =
= 6 690 - 4 950 + 700 = SEK 2 440 000

i) Dividends to share owners:

Dividends= profit, year 1 - [change in share capital + change in profit brought forward] =
= 972 - [(I 900 - l 900) + (1 368 - 1 088)] = SEK 692 000

135
4.16 AB Nyckel
a) ROT= Profit after financial revenues/ Total capital=
= (240 + 7)/1 805 :::: 0.14
It can/should be compared with other companies in the industry.

b) ROE= Profit after financial revenues and costs / Adjusted equity= [No untaxed reserves]=
= 235 /(200 + 760+183) = 0.21
It can/should be compared with the return on other investments.

c) Equity ratio [no untaxed reserves which means that Equity ratio I and 2 are the same]=
Adjusted equity I Total capital =
= (200 + 760 + 183)/1 805 = 0.63
Probably a good equity ratio. The shareholders' equity constitutes two-thirds of total capital in the company,
indicating a good long-term survival possibility.

d) Acid test ratio= (Current Assets - Inventory - Prepaid expenses) / Current Liabilities=
= (440 + 75)/382 :::: 1.35
The rule of thumb that the Acid test ratio should be larger tan I is fulfilled, which means a good ability to
pay the bills in the short term.

Current ratio = Current Assets/Current liabilities=

= (300 + 440 + 75)/382 :::: 2.13
Sometimes a rule of thumb that the Current ratio should be larger than 2 is used. This is fulfilled in this case,
which indicates a good ability to pay the bills in the short-term. This ratio, however, is a blunt measure.

e) Profit margin:
Profit margin = Profit after financial items I Turnover=
= (240 + 7)/3 960 :::: 0.06
This ratio means that for each SEK 100 in net sales, the company earns SEK 6. It needs to be compared with
its competitors.

136
 ..,
4.17 Fina Produkter AB
BALANCE SHEET
Assets Liabilities & Equity
Fixed Assets Equity
Real estate 10 Share capital 182
Machinery & equipment 150 Annual profit 70
Current assets Untaxed reserves
Inventories 144 Tax allocation reserve 30
Accounts receivable 20 Acc. additional depreciations 20
Bank balances 73 Non-current liabilities
Provisions for pensions 10
Current liabilities
Accounts payable 55
Advance payments from customers 10
Current tax liability 20
Total Assets 397 Total Liabilities & Equity 397

INCOME STATEMENT
Net sales 700
Operating costs - 500
Operating profit before depreciation 200
Depreciation according to plan - 20
Operating profit after depreciation 180
Financial revenues
Financial costs -45
Profit after financial items 135
Extraordinary revenues
Extraordinary costs - 15
Profit before appropriations and taxes 120
Additional depreciation - 20
Allocation to tax allocation reserve - 10
Profit before tax 90
Tax - 20
Annual profit 70

a) Net profit = SEK 70 000

b) ROT = Profit after financial revenues/Total capital =

=180/397;:::: 45.3%

ROE= Profit after financial items/ Adjusted equity=

=135/(182 + 70 + 50*0.78) ;:::: 46.4 %

c) Equity ratio I = Adjusted equity/Total capital =

=(182 + 70 + 50*0.78)/397 ;:::: 0.73

Equity ratio 2 = Risk bearing capital /Total capital= (Equity+ Untaxed reserves)/Total capital=
= (182 + 70 + 30 + 20)/397;:::: 0.76

d) Acid test ratio= (Current assets - Inventories - Prepaid expenses)/Current liabilities=

= (73 + 20)/85 ;:::: 1.09

Current ratio= Current assets / Current liabilities=

= (73 + 20 + 144)/85 ;:::: 2.8

137
4.18 IOT International
a) Total assets= SEK 231.8 million

b) Turnover= Net sales= SEK 460.7 million

c) Operating profit after depreciation= 460,7 - 158,0 - 95,8 - 170,9 - 14,2 = SEK 21.8 million

d) Equity ratio I = Adjusted equity I Total capital= (68 + (I - 0.22)*29)/ 23 l .8;:::; 39. l %

e) Equity ratio 2 = Risk bearing equity I Total capital= (Equity+ Untaxed reserves)/ Total capital=
= (68 + 29)/231.8 ;:::; 41.9 %

f) Average credit time to customers = Average accounts receivable * 365 / Sales =

= 49.3*365/460.7::::: 39.1 days
[Information about average credit time to customers is missing so we use accounts receivable as of Dec 31
as approximation.]

g) ROT = Profit after financial revenues / Total capital =

=(460.7 - 158.0-95.8 - 170.9 - 14.2 + 2.1)/231.8 ;:::; 10.3 %

h) ROE =Profit after financial revenues and costs / Adjusted equity=

= (460 .7 - 158.0 - 95.8 - 170.9 - 14.2 + 2.1 - I 2 .2)/ (68 + (1 - 0.22)*29) ::::: 12.9 %

i) Profit margin = Profit after financial items I Sales =

(460.7 - I 58.0 - 95 .8 - 170.9 - 14.2 + 2,1 - 12.2)/460.7 ;:::; 2.5 %

j) Capital turnover rate= Sales / Total capital= 460.7 /23 l .8;:::; 1.99 times/year

138
 4.19 Perspektivet AB
a)
Income statement (SEK thousand)
Net sales 817
Cost for goods sold - 496
Gross profit 348
Selling costs -82
Administrative costs -24
Other operating revenues (rents) 8
Operating profit before depreciation 250
Other operating costs (depreciaition according to plan) - 23
Operating profit after depreciation 227
Dividends from shares in subsidiaries 4
Interest revenues 14
Interest costs - 12
Profit after financial income and expenses 233
Appropriations - 13
Profit before tax 220
Income tax expense --48
Net profit for the year 172

Balance Sheet (SEK thousands)

Assets Liabilities & Equity
Fixed assets Equity
Land and buildings 162 Share capital 32
Machinery 6 Profit brought forward 23
Equipment 6 Annual profit 172
Shares in subsidiaries 11 227
185 Untaxed reserves
Current assets 92
Inventories 93 Liabilities
Accounts receivables 172 Bank loans 46
Cash and bank balances 19 Accounts payable 56
284 Current tax liabilities 48
150
Total Assets 469 Total Libailities & Equity 469

b) ROT = Profit after financial revenues / Total capital= (227 + 4 + 14)/469 :::: 52%

c) ROE =Profit after financial revenues and costs / Adjusted equity= 233/(227 + 0. 78*92) :::: 78 %

d) Equity ratio I = Adjusted equity / Total capital = (227 + 0.78*92)/469 :::: 64 %

Equity ratio 2 = Risk bearing equity/ Total capital = (Equity + Untaxed reserves)/Total capital =
= (227 + 92)/469 :::: 68%

e) Profit margin = Profit margin = Profit after financial items / Sales = 233/8 I 7 :::: 29 %

t) Capital turnover rate = Sales / Total capital = 8 I 7/469 :::: I. 7 times/year

139
,....
4.20 Projektteknik AB
a)
INCOME STATEMENT (thousand SEK)
Net sales 14 650
Change of inventory 640
Other operational revenues 40 Sold machine
Purchase, raw materials and consumables -5 800
Other external costs -I 350
Costs for salaries and employee benefits -5 800
Operating profit before depreciation 2 380
Depreciation according to plan -450
Operating profit after depreciation l 930
Financial costs -180 Interest costs + Capital loss, listed shares
Profit after financial items l 750
Extraordinary revenues and costs 0
Profit before appropriations and tax l 750
Additional depreciation -200
Allocation to tax allocation reserve -388 0.25*(1750-200)
Profit before tax I 163
Tax 256 0.22* 1163
Annual profit 907

BALANCE SHEET (thousand SEK)

Assets Equity & Liabilities
Fixed assets Equit1
Real estate property I 200 Share capilal l 500
Machinery and equipment (after depr.) 3 200 Profit brought forward 445
Annual profit 907
Current assets
Inventory [./ntuxerl rese,·ves
Raw materials inventory 560 Tax allocation reserve from previous year l l 00
Products in progress 840 Tax allocation reserve this year 388
Finished goods inventory l 400 2 800
Accounts receivable 2 140 Liahailitics
Cash and bank balances I 005 Bond loan 3 300
Accounts payable 2 450
Current tax liabilities 256

Total assets 10345 Total Equity & Liabilities* 10345

* Rounding error

b)
[n a stock dividend no new capital is supplied to the company as equity. The purpose is instead to transform
parts of the company's unrestricted equity to restricted equity. [n this way, the capital is tighter linked to
company operations; it cannot be distributed to the shareholders as dividends. In this case, it means that the parts
of the item Profit brought forward (and the portion of Annual profit that will not be distributed to shareholders as
dividends) are transferred to Share capital. Consequently Share capital increases and Profit brought forward
decreases with the same amount.

In a new capital issue, the company receives new capital from existing or new owners in exchange for shares. In
this situation, new shares are issued under certain conditions which means that Equity increases. Of course, the
asset side increases correspondingly. When the owners pay the company for the new shares, the new capital is
probably deposited in the Cash and bank balances. Later on, the capital can be used in the business operations.

140
4.21 Industrial Corporation Ltd
a) Adjustments to the balance sheet and income statement are made as follows.

1) As the depreciation according to plan of machinery and equipment amounts to SEK 20 million, the item
"Machinery and equipment" in the balance sheet is reduced from SEK I 900 million to SEK 1 880
million, and the item "Depreciation (according to plan)" in the income statement becomes SEK 20
million. (Since this is a cost, the item gets a negative sign in the income statement table).
2) The company's property is estimated to have increased in value by SEK 30 million (after discussion
with the company's auditor, one may assume). This means that the item "Land and buildings" in the
balance sheet increases by SEK 30 million (from SEK 300 million to SEK 330 million). This increase
in value is also recorded under depreciation in the income statement. Increase in value is recorded as a
"positive" depreciation . In total, thus, depreciation amounts to SEK IO million (SEK - 20 million (from
I.)+ SEK 30 million), i.e. with a positive amount (i.e. a total increase in value of"Machinery and
equipment" plus "Land and buildings").
3) The rent which the company has paid in advance is a so-called prepaid expense and recorded as an
interim claim in the balance sheet. The item "Interim claims" in the balance sheet is thus adjusted to
SEK IO million. At the same time, the item "cost of premises" in the income statement is reduced by
SEK 10 million (from SEK -220 million to SEK -210 million). The costs are reduced because the
company has had an expenditure in 2015 which is not matched by a cost.

b)
Profit after financial items amounts to SEK 20 million.
The corporate tax for 2015 will be 20 * 0.22 = 4.4 MSEK, which is entered in the income statement and in the
balance sheet (where it is recorded as tax liability).

Profit for the year = 15.6 MSEK, which is entered in the income statement and the balance sheet.
Total assets have increased from SEK 3 600 million, to SEK 3 620 million.

141
BALANCE SHEET 20X5 (Million SEK)

Before After Before After

ASSETS LIABILITIES & EQUITY
adjustments adjustments adjustments adjustments

Fixed Assets Equity

Land and buildings 300 330 Share capital 1 200 1 200
Machinery and equipment 1 900 1 880 Profit brought forward 400 400
2 200 2 210 Annual profit -- 15,6
1 600 1 615,60

Current Assets Untaxed reserves

Raw Materials 150 150 Acc. additional depreciations 100 100
Products in progress 230 230 Tax allocation reserves 200 200
Finnished products for sale 320 320 300 300
Accounts receivable 200 200 Liabilities
Interim claims 0 10 Bank loans 1 400 1 400
Cash and Bank 500 500 Accounts payable 300 300
1 400 1 410 Interim debts 0 0
Tax liablilites 0 4,4
1700 1 704,40

3 600 3 620 3 600 3 620

INCOME STATEMENT 20X5 (MILLION SEK)

Before After
adjustments adjustments
Net sales 410 410
Raw Materials and consumables -100 -100
Employee benefit expenses -80 -80
Cost of premises -220 -210
Operating profit/loss before depreciations
10 20
(EBITDA)
Depreciations (according to plan) -- 10
Operating profit/loss after depreciations
(EBIT)
-- 30
Financial revenues 20 20
Financial costs -30 -30
Profit/loss after financial items -- 20
Tax 0 -4,4
Annual profit/loss -- 15,6

142
5.1 DASAB
a) Increase
b) Decrease
c) Increase
d) Decrease
e) Decrease
f) Decrease
g) Increase
h) Increase
i) Increase
j) Decrease

5.2 Snart AB
a) The capital requirements increase, since a new product typically requires the company to purchase more
machinery (fixed assets) and to keep larger inventories (working capital).
b) The capital requirements decrease, since the inventory levels will decrease and therefore tie up less
working capital.
c) The capital requirements increase, since the fixed assets, in the form ofan investment in a new
machine, increase.
d) The capital requirements decrease, since the suppliers will finance more of the working capital.
e) The capital requirements decrease, since the company needs to tie up less working capital.

5.3 Hon & Han AB

a) Capital turnover rate = Sales / Total capital =
= Sales/(cash + accounts receivable + inventories + fixed assets) =
= 350/(120 + 35 + 225 + 100) ;::; 0.73 times

b) lf the accounts receivables increase by 25 %:

Capital turnover rate =
= 350/(120 + 1.25 * 35 + 225 + 100) ;::; 0.72 times

143
5.4 Kapitalis AB

Payments (SEK)

Labor
SEK 120/unit

Material
SEK 210/unit

Raw material inventory Production Credit to client

20 days 10 days 30 days

Finished goods
inventory
Credit from suppliers 10 days
15 days

Production volume per day: 140 units

Time Method
Capital tied up= Number of days * Cost per unit * Production volume per day
Days material= (20 - 15) + 10 + 10 + 30 = 55 days
Days work = 10/2 +IO+ 30 = 45 days
Capital tied up, material = 55 * 210 * 140 = SEK 1617000
Capital tied up, work = 45 * 120* 140 = SEK 756 000
Working capital tied up= SEK 2 373 000

The capital requirements for working_capital is SEK 2 373 000

144
 5.5 Kapit AB

Payments (SEK)

Labor
180/unit

Material
220/unit

Raw material inventory Production time

Credit to client
20 days 4 days
30 dagar
.. • 4 ••

Finished goods
•
Credit from suppliers inventory
14 days 10 dagar

Capital tied up= Number of days* Cost per unit * Production volume per day

Raw material inventories = 20 * 220 * 800 =

SEK 3 520 000
Credit from suppliers = -14 * 220 * 800 =
SEK - 2 464 000
Work in progress= 4 * 220 * 800 + (4/2) * 180 * 800 =
SEK 992 000
Finished goods inventory= 10 * (220 + 180) * 800 =
SEK 3 200 000
Credi ts to clients = 30 * (220 + I 80) * 800 =
SEK 9 600 000
Working capital tied up=
SEK 14 848 000
The capital requirements for working capital is SEK I 4 848 000

145
-
5.6 Rojmix AB

Payments (SEK)

Labor
SEK 5/unit

Material
SEK 42/unit

Finished goods time

Raw material inventory inventory Credit to clients
10 days 2 days 14 days

Production
2 days

Credit from suppliers

14 days

a) The working capital requirements can be calculated with the time method or the balance method:

Time method
Capital tied up = Number of days* Cost per unit* Production volume per day

Days material= (10 - 14) + 2 + 2 + 14 = 14 days

Days work in progress = 2/2 + 2 + 14 = 17 days
Capital tied up, material= 14 * 42 * l 200 = SEK 705 600
Capital tied up, work in progress= 17 * 5 * l 200 = SEK 102 000
Working capital tied up = SEK 807 600

Balance method
Capital tied up= Number of days * Cost per unit * Production volume per day

Raw material inventory = IO * 42 * I 200 = SEK 504 000

Credit from suppliers = - 14 * 42 * l 200 = SEK -705 600
Work in progTess = 2 * 42 * l 200 + (2/2) * 5 * l 200 = SEK 106 800
Finished goods inventory = 2 * (42 + 5) * 1 200 = SEK 112 800
Credits to clients= 14 * (42 + 5) * I 200 = SEK 789 600
Working capital tied up = SEK 807 600

The capital requirements for working capital is SEK 807 600.

b) The Company's total capital requirements is the sum of working capital, fixed assets, and safety capital =
= 807 600 + 200 000 + 50 000 = SEK l 057 000

146
 5.7 Flodet AB

Payments (SEK)

Labor
SEK 30/unit

Material
SEK 25/unit

Raw material inventory Production time

Credit to clients
20 days 10 days 20 days

Finished goods
inventory
Credit from suppliers
10 days
10 days

a) The working capital requirement, i.e. capital tied up as working capital, can be calculated by using the
time method or the balance method

Time Method
Capital tied up = Number of days* Cost per unit * Production volume per day

Days material= (20 - 10) + 10 + 10 +20 = 50 days

Days work in progress= 10/2 + 10 + 20 = 35 days
Capital tied up, material= 50 * 25 * 2 600 = SEK 3 250 000
Capital tied up, work m progress= 35 * 30 * 2 600 = SEK 2 730 000
Working capital tied up= SEK 5 980 000
Balance method
Capital tied up = Number of days * Cost per unit * Production volume per day

Raw material inventory = 20 * 25 * 2 600 = SEK l 300 000

Credit from suppliers = -l O * 25 * 2 600 = SEK-650 000
Work in progress = 10 * 25 * 2 600 + ( 10/2) * 30 * 2 600 = SEK l 040 000
Finished goods inventory = 10 * (25 + 30) * 2 600 = SEK I 430 000
Credits to customers = 20 * (25 + 30) * 2 600 = SEK 2 860 000
Working capital tied up= SEK 5 980 000

b) Total capital tied up= working capital+ fixed capital+ safety capital=
= 5 980 000+ ( I 600 000 + l 200 000) + 600 000 = SEK 9 380 000

147
c) The capital tied up in work can be calculated either with the time method or the balance method. Using
the time method is simplest, and the answer is already calculated in a) above:

Time method
Capital tied = Number of days * Cost per unit * Production volume per day

Days of work= 10/2 + 10 + 20 = 35 days

Capital tied up in work= 35 * 30 * 2 600 = SEK 2 730 000

Balance method
Capital tied= Number of days* Cost per unit* Production volume per day

Work in progress= (10/2) * 30 * 2 600 = SEK 390 000

Finished goods inventory= 10 * 30 * 2 600 = SEK 780 000
Credit to clients = 20 * 30 * 2 600 = SEK I 560 000
Capital tied up in work = SEK 2 730 000

d) The company's capital tied up in material can be calculated either with the
timemethod or the balance method. Using the time method is simplest, and the
answer is already calculated in a) above:

The time method

Capital tied up = Number of days* Cost per unit* Production volume per day

Days material = (20 - I 0) + IO + 10 + 20 = 50 days

Capital tied up in material = 50 * 25 * 2 600 = SEK 3 250 000

The balance method

Capital tied up= Number of days* Cost per unit* Production volume per day

Raw material storage = 20 * 25 * 2 600 = SEK 1300000

Supplier Credit = - 10 * 25 * 2 600 = SEK - 650 000
Work in progress = IO* 25 * 2 600 = SEK 650 000
Finished goods inventories = 10 * 25 * 2 600 = SEK 650 000
Credit to clients = 20 * 25 * 2 600 = SEK I 300 000
Capital tied up in material = SEK 3 250 000

148
5.8 Entender

Payments (SEK)

Wor k
SEK 60/unit

Material
SEK 45/unit

Raw Materials Finnished Goods

inventory Inventory Credit to customers
15 days 25 days 14 days
C • .-.-------•«---••
Production
8 days

Credit from supplie rs

20 dagar

When calculating capital requirements, the financial consequences of e.g. starting production of a new product
are analyzed. Depreciation costs are not matched by any payments, so these should consequently not be included
in the calculation.

Time method
Capital tied up = Number of days* Cost per unit * Production volume per day

Days material = ( 15 - 20) + 8 + 25 + 14 = 42 days

Days work in progress = 8/2 + 25 + 14 = 43 days

Capital tied up, material= 42 * 45 * 1 200 = SEK 2 268 000

Capital tied up, work in progress= 43 * 60 * l 200 = SEK 3 096 000
Working capital tied up = SEK 5 364 000

Balance method
Capital tied up = Number of days * Cost per unit * Production volume per day

Raw material inventory = 15 * 45 * I 200 = SEK 810 000

Credit from suppliers= -20 * 45 * I 200 = SEK - I 080 000
Work in progress= 8 * 45 * I 200 + (8/2) * 60 * I 200 = SEK 720 000
Finished goods inventory = 25 * (45 + 60) * I 200 = SEK 3 150 000
Credits to clients= 14 * (45 + 60) * I 200 = SEK I 764 000
Working capital tied up = SEK 5 364 000

Capital requirements for fixed assets= Machinery and equipment= SEK 2 300 000

Capital requirement for safety capital = SEK 150 000

Total capital requirement= working capital + fixed assets+ safety capital =

= 5 364 000 + 2 300 000 + 150 000 = SEK 7 8 14 000

149
5.9 Achilles Ltd
Payments (SEK}

Commission
15/unit

Labor etc.
62/unit

Material
55/unit

Raw material tid

Production Credit to clients
inventory
6 days 20 days
25 days

Finished goods
inventory
levera n tiirs- 28 days
kred it
14 dagar

When calculating capital requirements, the financial consequences of e.g. stmiing production of a new product
are analyzed In this case, we first have to determine which of the costs of manufacturing a jogger that actually
are matched by payments.

• Purchasing of materials and sales commissions are simple. It is obvious that there are actual payments
on these amounts.
• In terms of salaries (variable) and miscellaneous variable manufacturing costs, we can assume that the
conesponding payments actually occur.
• Depreciations are not matched by any payments.
• Considering the other fixed costs, we assume that payments to the conesponding amounts actually are
made. By doing so, we do not risk to underestimate the working capital requirements.

The discount of 2 % to customers paying after IO days (instead of 30 days), is not taken into account. Since we
do not know the sales price, we do not know how much these 2 % amount to. For the same reason , we value the
finished goods inventories to its production value and not the market value (the p1ice of the product). However,
we can assume that the selling price is higher than the cost of manufacturing; otherwise, the working capital
requirements will be higher than shown in the following calculation:

Payments for material = SEK 55 per unit

Payments in production (salaries mm)= 38 + 10 + (22 - 8) = SEK 62 per unit
Payments in sales commissions = SEK 15 per unit

Credit to clients: (IO + 30)/2 = 20 days

Production- and sales volume = 80 l 00/365 = 2 19.5 ::::: 220 units per day

Time method
Capital tied up= Number of days* Cost per unit* Production volume per day

Days material = (25 - 14) + 6 + 28 + 20 = 65 days

Days work in progress = = 6/2 + 28 + 20 = 51 days
Days sales commission = 20 days

Capital tied up, material= 65 * 55 * 220 = SEK 786 500

Capital tied up, manufacturing= 51 * 62 * 220 = SEK 695 640
Capital tied up, sales commission= 20 * 15 * 220 = SEK 66 000
Working capital tied up = SEK I 548 140

150
Balance method
Capital tied up= Number of days* Cost per unit* Production volume per day

Raw material inventory= 25 * 55 * 220 = SEK 302 500

Credit from suppliers= - 14 * 55 * 220 = SEK - 169400
Work in progress= 6 * 55 * 220 + (6/2) * 62 * 220 = SEK 113 520
Finished goods inventory= 28 * (55 + 62) * 220 = SEK 720720
Credits to clients= 20 * (55 + 62 + 15) * 220 = SEK 580 800
Working capital tied up= SEK l 548 140

Capital requirements for fixed assets = Machinery and equipment = 520 000 + 125 000 = SEK 645 000

Total capital requirement= working capital+ fixed assets= 1 548 140 + 645 000 = SEK 2 193 140

5.10 Meroven AB
a) The increase of SEK 120 000 in accounts receivables means that the:
working capital increases:
the difference between current assets (which increase) and current liabilities (unchanged)
increases.
liquid assets decrease:
an additional amount is tied up in accounts receivable instead of becoming cash.
b) The increase of SEK 50 000 in accounts payable means that the:
working capital decreases:
the difference between current assets (unchanged) and current liabilities (which increase)
decreases.
liquid assets increase:
less has been paid to the suppliers and has remained as cash.
c) The increase in inventory of SEK 70 000 means that the :
working capital increases:
the difference between current assets (which increase) and current liabilities (unchanged)
increases.
liquid assets decrease:
an additional amount is tied up in inventory instead of cash.

151
5.11 Eureka AB
a) Inventories have decreased with SEK 100 000 in value, and this is positive to the cash flow from
operating activities.

b) Current liabilities have decreases with SEK 100 000, and this is negative to the cash flow from
operating activities.

c) Fixed assets have increased with SEK 100 000, but this has no effect on the cash flow from operating
activities, since it is part of the investment activities.

d) Cash flow from the investing activities:

Closing balance 20X7 300 000
+ Depreciation 20X7 60 000
- Opening balance 20X7 -400 000
Total = - 40 000

Consequently: a net "disinvestment" of SEK -40 000. This is positive for the cash flow, meaning that
the fixed assets have decreased in value, e.g. due to sales of land, buildings or machinery and
equipment.

e) Cash flow from the financing activities:

Non-current liabilities: 250 000 - 250 000 = 0

Dividends - 10 000
Total - 10 000

Consequently: a net effect of SEK - 10 000 means a negative cash flow from the financing activities.

152
 5.12 The Short-term Perspective
Acid Test Ratio= (Current assets - Inventory- Prepaid expenses) / Current liabilities

Thus, the Acid Test Ratio (cash liquidity) is affected as follows:

a) Depreciation on the company's corporate cars

Unchanged
b) Purchasing of components for the manufacturing process, paid through the bank account Decreases
c) Impairment (write-down) of an accounts receivable (loss from bad debt) Decreases
d) Amortization of long-term bank loan
Decreases
e) Purchasing of office equipment, through invoice that has not yet been paid Decreases
t) A new capital issue is implemented Increases
g) An order ( contract) to a supplier is paid in advance Decreases
h) A bank loan (long-term) is received Increases
i) A stock dividend is implemented Unchanged

5.13 The Long-Term Perspective

Equity ratio I = Adjusted Equity / Total Capital

Thus, the Equity ratio I is affected as follows:

a) Transfer between two of the company's bank accounts Unchanged

b) Purchasing of components for the manufacturing process, paid through the bank account Unchanged
c) Amortization of bank loans Increases
d) A bank loan (long-term) is received Decreases
e) Payment of an accounts payable Increases
t) A stock dividend is implemented Unchanged
g) The company's tax liability increases, through a decision by the tax authority Decreases
h) Depreciation of the company's office building Decreases
i) Sales of products through invoice (profit margin: 30 %) Increases

5.14 JMW AB
a) Working capital= current assets - current liabilities

20X4: 173.3 - 69.0 = SEK I 04.3 million

20X5: 192.1 - 76.7 = SEK 115.4 million
Working capital increased during the year with: 115.4 - 104.3 = SEK I I.I million

b) Investments in fixed assets (excluding shares in other companies):

Closing balance = Opening balance - Depreciations according to plan + Investments made

i.e.
Book value 20X5 = Book value 20X4 - Depreciations according to plan 20X5 + Investments made 20X5
=>
Investments made 20X5 =
Book value 20X5 - Book value 20X4 - Depreciations according to plan 20X5 =
= (55.6 + 31.2) - (57.0 + 37.0) + 15.2 = 86.8 - 94.0 + 15.2 = SEK 8.0 million

JMW has invested SEK 8.0 million (net) in fixed assets during the year. The company has purchased to
a larger amount than what has been sold and/or depreciated.

153
-
5.15 Rodriges El Mekano

a) From the year's operations internally generated funds

I 926
Profit after finacial items
318
Depriciation according to plan
-152 Last year's tax is paid this year.
Tax for year 20X4
From the year's operations internally generated fimds 2 092

b) Funds provided
From the year's operations internally generated funds (from a) 2 092
Sale of fixed assets
Decrease in long-term receivables
New share issues (and other financial contributions)
41 [847-806)
Increase in long-term debts
2 133
Total fimds provided

c) Funds utilized
399 [2056-1975+ 318)
Investments in real estates, buildings, machinery, and equipmc
I 923 [7011-5088)
Investments in shares and bonds
Increase in long-term receivables
Decrease in long-term debts
119
Dividends to shareholders
2 441
Totalfimds utilized

d) Change in working capital

2 133
Total funds provided
2 441
Total funds utilized
-308 [2133-2441]
Change in working capital

e) Change in working capital, in detail*

221 [2127- 1906)
Increas/decrease of inventories
204 [(678+ 173+ 161) - (498+ 139+ 171))
Increase/decrease of short-term receivables
-568 [1977 -(l 101+1444))
Increase/decrease of liquid assets
-165 [(629+63 1) - (423-672))
Increase/ decrease of short-term liabilities**
-308
Change in workin capital

* NB: Plus/minus according to FAR's statement of cash flow presentation

** Increase of current tax liability is not taken into account here. It does not affect the cash flow his year.

154
5.16 Fearless
a) Acid test ratio = (Current assets - Inventories - Prepaid expenses)/Current liabilities
= (820+80)/880 ;:::; 1.02

b) Current ratio = Current assets/Current liabilities =

= (2700+820+80)/880 ;:::; 4.09

c) ROT= Profit after financial revenues/Total capital =[Here: average total capital]=
= (3 100 + 500)/((10 950+8 100)/2) ;:::; 37.8 %

d) ROE = Profit after financial items/ Adjusted equity = [Here: average adjusted equity] =
=(3 100 + 500 - I 000)/((4 000+2 350+2600)+( 4 000+0+2 400))/2 ;:::; 8.5 %

e) Profit margin = Profit after financial revenues and costs/Turnover =

=(3 100 + 500 - I 000)/25 100 ;:::; 10.3 %

f) Capital turnover rate = Turnover/Total capital =

= [Here: average total capital] =
= 25 100/((10 950 + 8 100)/2) ;:::; 2.6 times/year

g)

CASH-FLOW ANALYSIS

A - FUNDS PROVIDED
From the year's operations internally generated funds 2 800 (2600 + 200)
Sale of fixed assets
Decrease in long-term receivables
New share issues (and other financial contributions)
Increase in long-term debts 320
Total funds provided 3 120

B - FUNDS UTILIZED
Investments in real estates, buildings, machinery, and equipment 3 050 (7 350 - 4 500 + 200)
Investments in shares and bonds
Increase in long-term receivables
Decrease in long-term debts
Dividends to shareholders 50
Total funds utilized 3 JOO

CHANGE IN WORKING CAPITAL (A - B) 20 (3120 - 3100)

C. CHANGE IN WORKING CAPITAL, IN DETAIL

Increase (+ )/ decrease (- ) of inventories 50 (2 700 - 2 650)
Increase (+)/ decrease (- ) of short-term receivables -40 (820 - 860)
Increase(+)/ decrease(- ) of liquid assets - 10 (80 - 90)
Increase(- )/ decrease(+) of short-term liabilities 20 (900 - 880)

CHANGE IN WORKING CAPITAL (A - B = C) 20

155
5.17 Momentum AB
a) Equity ratio= Equity I Total capital= [no untaxed reserves]=
= (Total capital - Liabilities)/ Total capital=
=(10-8)/10=20%

b) Leverage equation:
Return on equity (ROE) =ROT+ (ROT- RL) * DIE=
ROT=l0%
RL=4%
Total capital= SEK 10 million
D = Debts= Liabilities= SEK 8 million
E =Equity= 10 - 8 = SEK 2 million
ROE= 10 % + (10 % - 4 %) * 8/2 = 34 %

c) The return to the owners, i.e. ROE, at 34 % results from:

( l) the total operations give a return of IO % (ROT),
(2) the borrowing of money for 4 % and a rate of return of l O % (ROT), provide the owners with an
additional 24 % return.

The reason why the latter component provides as much as 24 % to the owners is that the debt/equity ratio is
as high as 4 (8/2). This is the leverage effect.

5.18 Fly Mutter

a) Using the Du Pont chart gives the following:

Turnover
225.0 Contribution margin
minus 103.0 Profit
Variable costs minus 22.0 Profit margin
122.0 Fixed costs divided by 9.78%
81.0 Turnover ROT
225.0 times 10.8%

Turnover
225.0 Turnover rate
divided by 1.10
Total capital
204.0

b) Leverage equation:
Return on equity= ROE= ROT+ (ROT - RL)*D/E
ROT= 10.8 %
RL = Average interest rate on liabilities= 7.0 %
Total capital =204
E =Equity= 46
D =Debts= Liabilities= 204 - 46 = 158

ROE= 10.8 % + (10.8 % - 7 %) * I 58/46];::; 23.9 %

156
c) Decrease in sales with 15 %:

Turnover
191.3 Contribution margin
minus
Variable costs
103.7
:i:~s = I p~~:it Profit margin
.____F_i_xe_d_c_o_s_ts_ __ . , ,L..--d-iv-id_e_d-by
_ __. 3.42%
_ 81.0 . Turnover ROT
191.3 times 3.2%

Turnover
19.3 Turnover rate
divided by 0.94
Total capital
204.0

d) Leverage equation:
Return on equity= ROE= ROT+ (ROT - RL)*D/E:
ROT=3.2%
RL = Average interest rate on liabilities= 7.0 %
Total capital =204
E = Equity = 46
D = Debts = Liabilities = 204 - 46 = 158

ROE = 3.2 %+ (3.2 %- 7.0 %)*158/46 :=::::-9.8% (i.e. negative return).

157
5.19 Tors truck
Use the Du Pont chart and the leverage formula:

Previous year:
Equity (E) = 800 000
Liabilities (L) = 200 000
Total capital= l 000 000
Average interest rates on liabilities= 12.0 %

Turnover
1235 426 Contribution margin
minus 359 992 Profit
Variable costs minus = 134 549 Profit margin
875 434 Fasta kostnader divided by 10.9%
225 443 Turnover
1235 426 times ROT
13.1%
Turnover
1235 426 Turnover rate
divided by 1.2
Total capital
1000 000

ROE = ROT+ (ROT - RL) *D/E = 13 . 1 + ( 13 .1 - 12.0) *200 000/800 000 ;:::o 13.4 %

(Numbers in the Du Pont chart are rounded off.)

This year: Sales increase with 25 % and we assume that the variable costs increase as much . No other changes.

Equity (E) = 800 000

Liabilities (L) = 200 000
Total capital = l 000 000
Average interest rates on liabilities = 12.0 %

Turnover
1544282.5 Contribution margin
minus 449 990 Profit
Variable costs minus = 224 547 Profit margin
1094292.5 Fasta kostnader divided by 14.5%
225 443 Turnover
1544282.5 times ROT
21.8%
Turnover
1544282.5 Turnover rate
divided by 1.5
Total capital
1000 000

ROE = ROT + (ROT - RL)*D/E = 21.8 + (21.8 - 12.0)*200 000/800 000 ;:::o 24.3 %

(Numbers in the Du Pont chart are rounded off.)

158
6.1 True or false about budgeting

Please indicate whether the statements below are true or false. True False
A budget is a forecast of future financial events. X
A cash budget is used to estimate future costs. X
A material budget is an example of an investment budget. X
Sub-budgets, among other things, provide input to main budgets. X
Revised budget versions are developed periodically in order to take changed conditions
X
into account.
Budgets are used mostly to reward or control employees. X
Depreciation is included in a cash budget. X
Amortizations are not included in a budgeted income statement. X
Liquid assets ( e.g. cash) in a cash budget increase if the company is offered a longer credit
X
period from its suppliers.
The profit in a budgeted income statement increases if the company offers its customers a
X
longer credit period.

6.2 Dubble Engineering AB

Bud eted Income Statement 20Xl

Revenues
Sales 2 000 000
Total revenues 2 000 000
Costs
Cost of oods sold 850 000 - 200 000 650 000
Salaries 2* 12*30 000 720000
Rent 12* 12 000 144 000
Miscellaneous costs 85 000
De reciation I 500 000/ 10 150 000
Total costs 1 749 000
0 eratin rofit/loss 251 000
Financial costs 0,06* I 000 000 60 000
Profit/Loss after financial items 191 000

159
Cash Budget 20Xl
Cash receipts
Owners' capital contribution 2*500 000 I 000 000
Bank loan I 000 000
Received from customers 2 000 000 - 200 000 I 800 000
Total cash receipts 3 800 000
Payments
Amortization 10 000
Interest 60 000
Rent 144 000
Equipment l 500 000
Purchase of goods 850 000
Miscellaneous 85 000
Salaries 2* 12*30 000 720000
Total payments 3 369 000

Cash at the beginning of the year 0

Cash receipts(+) 3 800 000
Payments(- ) -3 369 000
Cash at the end of the year 431 000

Budizeted Balance Sheet 31 December 20Xl

Assets Equity and Liabilities
Equipment I 500 000 - I 500 000/ 10 I 350 000 Equity 1 000 000 + 191 000 I 191 000
Inventories 850 000 - 650 000 200 000 Bank loan 1 000 000 - 10 000 990 000
Accounts receivable 200 000
Liquid assets 431 000
Total Assets 2 181 000 Total Equity and Liabilities 2 181 000

160

J
6.3 Electron AB

Year 20Xl

Bud2eted Income Statement 20Xl

Revenues
Sale 3 000 000
Total revenues 3 000 000
Costs
Cost of goods sold 12 * 150 000 - 140 000 1660000
Salaries 2* 12*20 000 480 000
Rent 12* 15 000 180 000
Miscellaneous costs 35 000
Depreciation 550 000/5 110 000
Total costs 2 465 000
Operating profit/loss 535 000
Financial costs 500 000*0, 1 50 000
Profit/Loss after financial items 485 000

Cash Bud2et 20Xl

Cash receipts
Owners' capital contribution 2*500 000 I 000 000
Bank loan 500 000
Received from customers 3 000 000 - 3 000 000 * 30/365 2 753 425
Total cash receipts 4 253 425
Payments
Amortization 100 000
Interest 50 000
Rent 180 000
Equipment 550 000
Miscellaneous 35 000
Purchase of goods 12 * 150 000 - 12 * 150 000 * 14/365 I 730 959
Salaries 2* 12*20 000 480 000
Total payments 3 125 959

Cash at the beginning of the year 0

Cash receipts (+) 4 253 425
Payments(- ) -3 125 959
Cash at the end of the year I 127 466

161
Bud eted Balance Sheet December 20Xl 31
Assets and Liabilities
E ui ment 550 000 - 110 000 440 000 2*500 000 + 485 000 I 485 000
Inventories I 800 000 - I 660 000 140 000 Bank loan 500 000 - I 00 000 400 000
Accounts receiv able Accounts payable
(3 000 000/365) *30 246 575 (12*150 000/365)*14 69 041
Li uid assets I 127 466
Total Assets 1954041 Total Equity and Liabilities 1954041

Year 20X2

Bud eted Income Statement 20X2

Revenues
Sales 3 500 000
Total revenues 3 500 000
Costs
Cost of oods sold 140 000 + 2 400 000 - 190 000 2 350 000
Salaries 2* 12*25 000 600 000
-------------+--------!
Rent 12*15 000 180 000
-------------+--------!
Miscellaneous costs 35 000 + 10 000 45 000
De reciation 550 000/5 110 000
Total costs 3 285 000
rofit/loss
- - - - - - - - - - - - - - + - - -215- -000
-I
Financial costs 4_0_0_0_0_0_*_0,~l_ _ _ _ _ _ _ _ _-+-__
4_0_0_0----10
Profit/Loss after financial items 175 000

Comment on budgeted income statement for 20X2:

Cost ofgoods sold: The company, started 20X2 with a goods inventory of SEK 140 000. During the year, goods
were purchased for SEK 2 400 000 (= 12 * 200 000). At the end of the year, there are goods worth SEK 190 000
left in the inventory.

162
Cash Budget 20X2
Cash receipts
Received from customers 246 575 + 3 500 000 - 3 500 000 * 30/365 3 458 904
Total cash receipts 3 458 904
Payments
Amortization 100 000
Interest 40 000
Rent 180 000
Miscellaneous 45 000
Purchase of goods 69 041 + l 2*200 000 - 12*200 000 * 30/365 2271781
Salaries 600 000
Total payments 3 236 781

Cash at the beginning of the year 1 127 466

Cash receipts(+) 3 458 904
Payments (- ) -3 236 781
Cash at the end of the year I 349 589

Comment on the cash budget for 20X2:

Received from customers : The balance sheet for 20X I shows accounts receivable of SEK 246 575 , which is due
for payment in the beginning of 20X2. During 20X2 the company expects to sell goods for SEK 3 500 000. Of
these, customers will pay SEK 287 671 the following year, i.e. 20X3 .
Purchase of goods: The balance sheet for 20X I shows accounts payable of SEK 69 041, which is due for
payment in the beginning of20X2. During 20X2 the company expects to purchase goods for SEK 2 400 000.
The company will pay SEK 197 260 of these to its suppliers the following year, i.e. 20X3.

Budgeted Balance Sheet December 31 20X2

Assets Equity and liabilities
Equipment 440 000 - 110 000 330 000 Equity l 485 000 + 175 000 l 660 000
Inventories 140 000 + 2 400 000 - 2 350 000 190 000 Bank loan 400 000 - I 00 000 300 000
Accounts receivable Accounts payable
(3 500 000/365)*30 287 671 (12*200 000/365)*30 197 260
Liquid assets l 349 589
Total Assets 2 157 260 Total Equity and Liabilities 2 157 260

163
6.4 Buckle Up AB
a)

Bud eted Income Statement 20X2 (million SEK)

Revenues
Sales 6 500
Total revenues 6 500
Costs
Cost of oods sold 3 650 - 150 3 500
Salaries 1 850
costs 75
Administration costs 50
De reciation 200
Total costs 5 675
rofit/loss 825
Financial costs 120
Profit/Loss for the ear 705

Comment on budgeted income statement for 20X2:

Cost ofgoods sold: The closing balance from 20X l shows that the company has consumed the entire inventory
of components and has sold all finished goods and therefore will start 20X2 with empty inventories. During
20X2, component purchases are expected to be SEK 3 650 million. At the end of20X2, components worth SEK
l 50 million are estimated to remain in the company (i.e. they have not been consumed).

Cash Bud2et 20X2 (million SEK)

Cash receipts
Received from customers 450 + 6 500 - 510 6 440
Total cash receipts 6 440
Payments
Payments to suppliers 420 + 3 650 - 550 3 520
Salaries l 850
Operations 75
Administration 50
Interest 120
Investments in equipment 350
Amortization 95
Dividend 250
Total payments 6 310

Cash at the beginning of the year 550

Cash receipts ( +) 6 440
Payments(-) -6 310
Cash at the end of the year 680

164
Comments on the cash budget for 20X2:
Payments from customers: According to the balance sheet from 20X 1, the company had accounts receivable of
SEK 450 million, which is due for payment early in 20X2. The company expects to sell products for SEK 6 500
million in 20X2, ofwhich SEK 510 million will be paid by customers the following year, i.e. 20X3.
Payments to suppliers: According to the balance sheet from 20X 1, the company had accounts payable of SEK
420 million, which are due for payment early in 20X2. The company expects to purchase components for SEK
3 650 million in 20X2 of which SEK 550 million will be paid to suppliers the following year, i.e. 20X3.

Budeeted Balance Sheet 31 December 20X2 (million SEK)

Assets Equity and liabilities
Equipment Equity
1 500 + 350 - 200 I 650 1 000 + 705 - 250 I 455
Component and finished goods inventories Bank loan
3 650 - 3 500 150 820 - 95 725
Accounts receivable 510 Accounts payable 550
Liquid assets 680 Other short-term liabilities 260
Total Assets 2 990 Total Equity and Liabilities 2 990

b)
Income statement 20X2 Budget Outcome Deviation Deviation
(million SEK) (million SEK) (million SEK) (%)
Revenues
Sales 6 500 6 350 -150 -2%
Total revenues 6 500 6 350 -150 -2%
Costs
Cost of goods sold 3 500 3 810 -310 -9%
Salaries I 850 I 400 450 24%
Operating costs 75 75 0 Unchanged
Administration costs 50 50 0 Unchanged
Depreciation 200 175 25 13%
Total costs 5 675 5 510 165 3%
Operating profit/ loss 825 840 15 2%
Financial costs 120 90 30 25%
Profit after financial items 705 750 45 6%

165
Analysis
According to the budgeted income statement, cost of goods sold (i.e. cost of those purchased component that
have been sold) amounts to 54 % of sales, but the outcome shows a decrease in sales by 2 % while the cost of
goods sold has increased by 9 %.
• Budgeted Cost of goods sold / Sales = 3 500 / 6 500 ::::: 54 %
• Outcome Cost of goods sold / Sales= 3 810 / 6 350 = 60 %

Cost of goods sold typically increases as sales increase. If the company has no prior agreements with suppliers
for extended orders, this cost may increase as a percentage of sales as well. However, in this case sales have
decreased while cost of goods sold has increased. Reasons might be:
A supplier has gone bankrupt or for other reasons has not fulfilled its part of the agreement.
The company may have been forced to find new and more expensive suppliers that were not included in
the budget estimates.

Despite decrease in sales and increase in cost of goods sold, the profit after financial items has increased by 6%.
Reasons might be:
Cost for salaries has decreased by 24 %, which indicates staff reductions.
Depreciation has decreased by 13 %, which indicates disposal of e.g. production equipment.
a) The company has sold equipment that is no longer in use in order to increase liquid assets.
b) Equipment might have broken down and the company has decided not to replace it.
The financial costs have decreased with 25 %, for example because management has managed to
renegotiate the interest rates on the company's loans.

166
167
Formula sheet

The following definitions of selected formulas are used on the exams in

ME1003 and ME1314 during the academic year 2018/2019.
The purpose of the formula sheet is to encourage understanding and analysis rather than memorizing
information. Simpler concepts and formulas that are presented in the course book or in documentation from
lectures have not been included in the formula sheet.

Exact definitions of financial formulas differ somewhat between different textbooks, subject areas and between
English and Swedish. This means that there might be some differences between the course book and other books
within the field. In order to avoid misunderstanding, please note that it is the formulas below that will be used on
the exams in ME1003 and ME1314 during the academ ic year 2018/2019.

Investment calculation

Future value factor (FV): (1 + i)Y

1
Present value factor (PV):
(1 +i)Y

1-(l+i)-Y
Cumulative present value factor (CPV):

Annuity factor (ANN):

1-(l+i)-Y

Financial analysis

Profit after financial revenues and costs *(1 -tax rate)

Return on Equity (ROE)=
Adjusted equity

ROE can be calculated after tax (as above) or before tax, i.e. with numerator:
Profit after financial revenues and costs.
If possible, Adjusted equity is calculated as the average of this year's balance sheet and last
year's balance sheet. The denominator is then called "Average adjusted equity".

Operationg profit after depreciation+ financial revenues

Return on Total Capital (ROT) =
Total capital

If possible, Total capital is calculated as the average of this year's balance sheet and last
year's balance sheet. The denominator is then called "Average total capital".

168
 Profit after financial revenues and costs
Profit margin =
Turnover

Current assets - Inventories and finished products - Advance payments to suppliers

Acid test ratio =
Current liabilities

Current assets
Current ratio =
Current liabilities

Adjusted Equity
Equity ratio l =
Total capital

Risk-bearing Equity
Equity ratio 2 =
Total capital

Liabilities + Untaxed reserves * tax rate

Debt/equity ratio (D/E) =
Adjusted Equity

Return on equity in the

D
leverage equation (ROE) = ROT+ (ROT - RL) * -
E

RL = Average interest rate on liabilities

Sales [per year]

Capital turnover rate [times/year] =
Total capital (at year's end [SEK])

Turnover period [365 days]

Inventory turnover rate [times/year] =
Average time in inventory [days]

Average accounts receivable [SEK]* 365 [days]

Average credit time to clients [days]=
Sales [per year]

Average accounts payable [SEK] * 365 [days]

Average credit time from suppliers [days] =
Purchase costs [per year]

Working capital = Current assets - Current liabilities

169
 Interest tables

(1+rt
Table A: End Value/ Tabell A: Slutvarde (1+i/
y 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11 % 12% 13% 14% 15% 16% 17% 18% 20%
1 1,0 1,0100 1,0200 1,0300 1,0400 1,0500 1,0600 1,0700 1,0800 1,0900 1,1000 1,1100 1,1200 1,1300 1,1400 1,1500 1,1600 1,1700 1,1800 1,2000
2 1,0 1,0201 1,0404 1,0609 1,0816 1,1025 1,1236 1,1449 1,1664 1,1881 1,2100 1,2321 1,2544 1,2769 1,2996 1,3225 1,3456 1,3689 1,3924 1,4400
3 1,0 1,0303 1,0612 1,0927 1,1249 1,1576 1,1910 1,2250 1,2597 1,2950 1,3310 1,3676 1,4049 1,4429 1,4815 1,5209 1,5609 1,6016 1,6430 1,7280
4 1,0 1,0406 1,0824 1,1255 1,1699 1,2155 1,2625 1,3108 1,3605 1,4116 1,4641 1,5181 1,5735 1,6305 1,6890 1,7490 1,8106 1,8739 1,9388 2,0736
5 1,0 1,0510 1,1041 1,1593 1,2167 1,2763 1,3382 1,4026 1,4693 1,5386 1,6105 1,6851 1,7623 1,8424 1,9254 2,0114 2,1003 2,1924 2,2878 2,4883
6 1,0 1,0615 1,1262 1,1941 1,2653 1,3401 1,4185 1,5007 1,5869 1,6771 1,771 6 1,8704 1,9738 2,0820 2,1950 2,3131 2,4364 2,5652 2,6996 2,9860
7 1,0 1,0721 1,1487 1,2299 1,3159 1,4071 1,5036 1,6058 1,7138 1,8280 1,9487 2,0762 2,2107 2,3526 2,5023 2,6600 2,8262 3,0012 3,1855 3,5832
8 1,0 1,0829 1,1717 1,2668 1,3686 1,4775 1,5938 1,7182 1,8509 1,9926 2,1436 2,3045 2,4760 2,6584 2,8526 3,0590 3,2784 3,5115 3,7589 4,2998
9 1,0 1,0937 1,1951 1,3048 1,4233 1,5513 1,6895 1,8385 1,9990 2,1719 2,3579 2,5580 2,7731 3,0040 3,2519 3,5179 3,8030 4,1084 4,4355 5,1598
10 1,0 1,1046 1,2190 1,3439 1,4802 1,6289 1,7908 1,9672 2, 1589 2,3674 2,5937 2,8394 3,1058 3,3946 3,7072 4,0456 4,4114 4,8068 5,2338 6,1917
11 1,0 1,1157 1,2434 1,3842 1,5395 1,7103 1,8983 2,1049 2,3316 2,5804 2,8531 3,1518 3,4785 3,8359 4,2262 4,6524 5,1173 5,6240 6,1759 7,4301
12 1,0 1,1268 1,2682 1,4258 1,6010 1,7959 2,0122 2,2522 2,5182 2,8127 3,1384 3,4985 3,8960 4,3345 4,8179 5,3503 5,9360 6,5801 7,2876 8,9161
13 1,0 1,1381 1,2936 1,4685 1,6651 1,8856 2,1329 2,4098 2,7196 3,0658 3,4523 3,8833 4,3635 4,8980 5,4924 6,1528 6,8858 7,6987 8,5994 10,6993
14 1,0 1,1495 1,3195 1,5126 1,7317 1,9799 2,2609 2,5785 2,9372 3,3417 3,7975 4,3104 4,8871 5,5348 6,2613 7,0757 7,9875 9,0075 10,1472 12,8392
15 1,0 1,1610 1,3459 1,5580 1,8009 2,0789 2,3966 2,7590 3,1722 3,6425 4,1772 4,7846 5,4736 6,2543 7,1379 8,1371 9,2655 10,5387 11 ,9737 15,4070
16 1,0 1,1726 1,3728 1,6047 1,8730 2,1829 2,5404 2,9522 3,4259 3,9703 4,5950 5,3109 6,1304 7,0673 8,1372 9,3576 10,7480 12,3303 14,1290 18,4884
17 1,0 1,1843 1,4002 1,6528 1,9479 2,2920 2,6928 3,1588 3,7000 4,3276 5,0545 5,8951 6,8660 7,9861 9,2765 10,7613 12,4677 14,4265 16,6722 22,1861
18 1,0 1,1961 1,4282 1,7024 2,0258 2,4066 2,8543 3,3799 3,9960 4,7171 5,5599 6,5436 7,6900 9,0243 10,5752 12,3755 14,4625 16,8790 19,6733 26,6233
19 1,0 1,2081 1,4568 1,7535 2,1068 2,5270 3,0256 3,6165 4,3157 5,1417 6,1159 7,2633 8,6128 10,1974 12,0557 14,2318 16,7765 19,7484 23,2144 31,9480
20 1,0 1,2202 1,4859 1,8061 2,191 1 2,6533 3,2071 3,8697 4,6610 5,6044 6,7275 8,0623 9,6463 11 ,5231 13,7435 16,3665 19,4608 23,1056 27,3930 38,3376

1/((1 +r)n)

Table B: Net Present Value, NPV / Tabell B: Nuvarde 1/((1 +i)y)

y 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11 % 12% 13% 14% 15% 16% 17% 18% 20%
1 1,0000 0,9901 0,9804 0,9709 0,9615 0,9524 0,9434 0,9346 0,9259 0,9174 0,9091 0,9009 0,8929 0,8850 0,8772 0,8696 0,8621 0,8547 0,8475 0,8333
2 1,0000 0,9803 0,9612 0,9426 0,9246 0,9070 0,8900 0,8734 0,8573 0,8417 0,8264 0,8116 0,7972 0,7831 0,7695 0,7561 0,7432 0,7305 0,7 182 0,6944
3 1,0000 0,9706 0,9423 0,9151 0,8890 0,8638 0,8396 0,8163 0,7938 0,7722 0,7513 0,7312 0,7118 0,6931 0,6750 0,6575 0,6407 0,6244 0,6086 0,5787
4 1,0000 0,9610 0,9238 0,8885 0,8548 0,8227 0,7921 0,7629 0,7350 0,7084 0,6830 0,6587 0,6355 0,6133 0,5921 0,5718 0,5523 0,5337 0,5158 0,4823
5 1,0000 0,9515 0,9057 0,8626 0,8219 0,7835 0,7473 0,7130 0,6806 0,6499 0,6209 0,5935 0,5674 0,5428 0,5194 0,4972 0,4761 0,4561 0,4371 0,4019
6 1,0000 0,9420 0,8880 0,8375 0,7903 0,7462 0,7050 0,6663 0,6302 0,5963 0,5645 0,5346 0,5066 0,4803 0,4556 0,4323 0,4104 0,3898 0,3704 0,3349
7 1,0000 0,9327 0,8706 0,8131 0,7599 0,7107 0,6651 0,6227 0,5835 0,5470 0,5132 0,4817 0,4523 0,4251 0,3996 0,3759 0,3538 0,3332 0,3139 0,2791
8 1,0000 0,9235 0,8535 0,7894 0,7307 0,6768 0,6274 0,5820 0,5403 0,5019 0,4665 0,4339 0,4039 0,3762 0,3506 0,3269 0,3050 0,2848 0,2660 0,2326
9 1,0000 0,9143 0,8368 0,7664 0,7026 0,6446 0,5919 0,5439 0,5002 0,4604 0,4241 0,3909 0,3606 0,3329 0,3075 0,2843 0,2630 0,2434 0,2255 0,1938
10 1,0000 0,9053 0,8203 0,7441 0,6756 0,6139 0,5584 0,5083 0,4632 0,4224 0,3855 0,3522 0,3220 0,2946 0,2697 0,2472 0,2267 0,2080 0, 1911 0,1615
11 1,0000 0,8963 0,8043 0,7224 0,6496 0,5847 0,5268 0,4751 0,4289 0,3875 0,3505 0,3173 0,2875 0,2607 0,2366 0,2149 0,1954 0,1778 0,1619 0,1346
12 1,0000 0,8874 0,7885 0,7014 0,6246 0,5568 0,4970 0,4440 0,3971 0,3555 0,3186 0,2858 0,2567 0,2307 0,2076 0,1869 0,1685 0,1520 0, 1372 0,1122
13 1,0000 0,8787 0,7730 0,6810 0,6006 0,5303 0,4688 0,4150 0,3677 0,3262 0,2897 0,2575 0,2292 0,2042 0,1821 0,1625 0,1452 0,1299 0,11 63 0,0935
14 1,0000 0,8700 0,7579 0,6611 0,5775 0,5051 0,4423 0,3878 0,3405 0,2992 0,2633 0,2320 0,2046 0,1807 0,1597 0,1413 0,1252 0,111 0 0,0985 0,0779
15 1,0000 0,8613 0,7430 0,641 9 0,5553 0,4810 0,4173 0,3624 0,3152 0,2745 0,2394 0,2090 0,1827 0,1599 0,1401 0,1229 0,1079 0,0949 0,0835 0,0649
16 1,0000 0,8528 0,7284 0,6232 0,5339 0,4581 0,3936 0,3387 0,2919 0,2519 0,2176 0,1883 0,1631 0,1415 0,1229 0,1069 0,0930 0,0811 0,0708 0,0541
17 1,0000 0,8444 0,7 142 0,6050 0,5134 0,4363 0,3714 0,3166 0,2703 0,2311 0,1978 0,1696 0,1456 0,1252 0,1078 0,0929 0,0802 0,0693 0,0600 0,0451
18 1,0000 0,8360 0,7002 0,5874 0,4936 0,4155 0,3503 0,2959 0,2502 0,2120 0,1799 0,1528 0,1300 0,1108 0,0946 0,0808 0,0691 0,0592 0,0508 0,0376
19 1,0000 0,8277 0,6864 0,5703 0,4746 0,3957 0,3305 0,2765 0,2317 0,1945 0,1635 0,1377 0,1161 0,0981 0,0829 0,0703 0,0596 0,0506 0,0431 0,0313
20 1,0000 0,8195 0,6730 0,5537 0,4564 0,3769 0,3118 0,2584 0,2145 0,1784 0,1486 0,1240 0,1037 0,0868 0,0728 0,0611 0,0514 0,0433 0,0365 0,0261

170
 ( 1-( 1+rf°)/r
Table C: Sum of NPV / Tabell C: Summa nuvarde (1-(1 +jrY)/i
y 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 20%
1 1 0,9901 0,9804 0,9709 0,9615 0,9524 0,9434 0,9346 0,9259 0,9174 0,9091 0,9009 0,8929 0,8850 0,8772 0,8696 0,8621 0,8547 0,8475 0,8333
2 2 1,9704 1,9416 1,9135 1,8861 1,8594 1,8334 1,8080 1,7833 1,7591 1,7355 1,7125 1,6901 1,6681 1,6467 1,6257 1,6052 1,5852 1,5656 1,5278
3 3 2,9410 2 ,8839 2,8286 2,7751 2,7232 2,6730 2,6243 2,5771 2,5313 2,4869 2,4437 2,4018 2,3612 2,3216 2,2832 2,2459 2,2096 2,1743 2,1065
4 4 3,9020 3,8077 3,7171 3,6299 3,5460 3,4651 3,3872 3,3121 3,2397 3,1699 3,1024 3,0373 2,9745 2,9137 2,8550 2,7982 2,7432 2,6901 2,5887
5 5 4 ,8534 4,7135 4,5797 4,4518 4,3295 4,2124 4,1002 3,9927 3,8897 3,7908 3,6959 3,6048 3,5172 3,4331 3,3522 3,2743 3,1993 3,1272 2,9906
6 6 5,7955 5,6014 5,4172 5,2421 5,0757 4,9173 4,7665 4 ,6229 4,4859 4,3553 4,2305 4,1114 3,9975 3,8887 3,7845 3,6847 3,5892 3,4976 3,3255
7 7 6,7282 6,4720 6,2303 6,0021 5,7864 5,5824 5,3893 5,2064 5,0330 4,8684 4,7122 4,5638 4,4226 4,2883 4, 1604 4,0386 3,9224 3,8115 3 ,6046
8 8 7,6517 7,3255 7,0197 6,7327 6,4632 6 ,2098 5,9713 5,7466 5,5348 5,3349 5,1461 4,9676 4,7988 4,6389 4,4873 4,3436 4,2072 4,0776 3,8372
9 9 8,5660 8,1622 7,7861 7,4353 7,1078 6,8017 6,5152 6,2469 5,9952 5,7590 5,5370 5,3282 5,1317 4,9464 4,7716 4,6065 4,4506 4,3030 4 ,0310
_1:..:0+-'1-'-0---'9'-'-,4--'7--'1-'-3---'8'-'-,9::..:8:..::2..:.6_8'-'-,5::..:3:..:0-=.2_8'-'-,-'-11:..:0..::.9-7,'-,7:..:2c.,1.c.7_7C'-,3::..:6:..::0..;_1_7C'-,0::..:2:.:3..:.6---C6"-'7;_1;_:0..;_1_6'-'.,4.:..1:..:7.:..7-i--.:c6,..;_14.:..4:..:6.c...:.5:..::
,8..::.89::..:2:._::5.:..:
,6:..::5.::;02::......:5'-'.,4.:.:2:..::6::.2_5::.!'::.21:..:6:..:1-i--.:c5,e:_0_;_:18:.:8c.;__;4:..::
, 8..::.3::..:32:.._4.:..:
,6:.:5..::.86;:_4.:.,.,4.:..:.c..941 4 1925
11 11 10,3676 9, 7868 9,2526 8,7605 8,3064 7,8869 7,4987 7, 1390 6,8052 6,4951 6 ,2065 5,9377 5,6869 5,4527 5,2337 5,0286 4,8364 4,6560 4 ,3271
12 12 11,2551 10,5753 9,9540 9,3851 8,8633 8,3838 7,9427 7,5361 7,1607 6,8137 6,4924 6,1944 5,9176 5,6603 5,4206 5,1971 4,9884 4,7932 4 ,4392
13 13 12,1337 11 ,3484 10,6350 9,9856 9,3936 8,8527 8,3577 7,9038 7,4869 7, 1034 6,7499 6,4235 6, 1218 5,8424 5,5831 5,3423 5, 1183 4,9095 4 ,5327
14 14 13,0037 12,1062 11,2961 10,5631 9,8986 9 ,2950 8,7455 8,2442 7,7862 7,3667 6 ,9819 6,6282 6,3025 6,0021 5,7245 5,4675 5,2293 5,0081 4 ,6106
_1,.c5+-'1-'-5---'-13'-'-,8::..:6:..:5~1---'-12"-,8::..:4:..:9..::.3-'-11,',-9::..:3:..:7..::.9_11...,_,~11,.c8~4-1O"',3::..:7,.c9~7_9"',7'--1:..::2-=-2_9"-,.:..:10:..:.7..::.9---'8"-,5::..:5:..:9..::.5_8::.c,0::..:6:..:0.c.7-7'-'-60::..:6c..,1~7;_
, 1-'-90::..:9c......:6.:..:
,8:..:1..::.09=---6'-'-,4-'-'6:..::2..:.4_6=...,.:..14.:.:2:..::2+.-.::.5,"'-84-'-'7--'4-'--=-5.:.:
,5.c.7::..:55:..::..:5.:..:,3:..::2:..:42::......:5"-,0-'-'--916 4 ,67 55
16 16 14,7179 13,5777 12,5611 11,6523 10,8378 10,1059 9,4466 8,8514 8,3126 7,8237 7,3792 6,9740 6,6039 6,2651 5,9542 5,6685 5,4053 5,1624 4 ,7296
17 17 15,5623 14,2919 13,1661 12,1657 11,2741 10,4773 9 ,7632 9,1216 8,5436 8,0216 7,5488 7,1196 6,7291 6,3729 6,0472 5,7487 5,4746 5,2223 4,7746
18 18 16,3983 14,9920 13,7535 12,6593 11 ,6896 10,8276 10,0591 9 ,3719 8,7556 8,2014 7,7016 7,2497 6,8399 6,4674 6,1280 5 ,8178 5,5339 5,2732 4 ,8122
19 19 17,2260 15,6785 14,3238 13,1339 12,0853 11 ,1581 10,3356 9 ,6036 8,9501 8,3649 7,8393 7,3658 6,9380 6,5504 6,1982 5 ,8775 5,5845 5,3162 4,8435
_2_0~2_0_18...,_,0_4_5_6_16...,_,3_;_5_1_4_14...,_.8_7_7_;_5_13...,_,5_9_0_3~12...,_,4_6_2_2_11...,_,4_6_;_9_;_9_10'-"-,5-'-9'--4-'-0_9'-"-,8-'-1:..:8_1_9'-"-,_12_8_5~8,_;_5_13_6_7~ ,9_63_3_7~,4_6_94_7...,_,0_;_2_4.c..8_6...,_,-'-62:..:3_1~6,_;_2_59_3_5_;_ ,9_2_88_5_;_ ,6_2_78_5...,_,3_527 4 ,8696

r/( 1-( 1+rt)

Table D: Annuity/ Tabell D: Annuitet i/(1-(1 +it)
y 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 20%
1,00 1,0100 1,0200 1,0300 1,0400 1,0500 1,0600 1,0700 1,0800 1,0900 1,1000 1,1100 1,1200 1, 1300 1, 1400 1,1500 1,1600 1,1700 1,1800 1,2000
2 0,50 0,5075 0,5150 0,5226 0,5302 0,5378 0 ,5454 0,5531 0 ,5608 0,5685 0,5762 0 ,5839 0 ,5917 0,5995 0,6073 0 ,6151 0 ,6230 0 ,6308 0 ,6387 0,6545
3 0,33 0,3400 0,3468 0 ,3535 0,3603 0,3672 0 ,3741 0,3811 0,3880 0,3951 0,4021 0,4092 0,4163 0,4235 0,4307 0,4380 0,4453 0 ,4526 0,4599 0,4747
4 0,25 0,2563 0,2626 0 ,2690 0,2755 0,2820 0 ,2886 0,2952 0 ,3019 0,3087 0,3155 0,3223 0 ,3292 0 ,3362 0,3432 0,3503 0,3574 0,3645 0,3717 0,3863
5 0,20 0,2060 0,2122 0,2184 0,2246 0,2310 0 ,2374 0 ,2439 0,2505 0,2571 0,2638 0,2706 0 ,2774 0,2843 0,2913 0,2983 0 ,3054 0,3126 0 ,3198 0,3344
6 0,17 0,1725 0,1785 0 ,1846 0,1908 0,1970 0 ,2034 0 ,2098 0 ,2163 0 ,2229 0 ,2296 0,2364 0 ,2432 0 ,2502 0,2572 0 ,2642 0 ,2714 0,2786 0 ,2859 0,3007
7 0,14 0,1486 0,1545 0,1605 0,1666 0,1728 0 ,1791 0 ,1856 0 ,1921 0 ,1987 0,2054 0,2122 0 ,2191 0,2261 0,2332 0 ,2404 0 ,2476 0,2549 0,2624 0,2774
8 0,13 0,1307 0,1365 0,1425 0,1485 0,1547 0 ,1610 0,1675 0 ,1740 0 ,1807 0 ,1874 0,1943 0,2013 0 ,2084 0 ,2156 0 ,2229 0 ,2302 0,2377 0,2452 0 ,2606
9 0,11 0,1167 0,1225 0 ,1284 0,1345 0,1407 0 ,1470 0,1535 0,1601 0 ,1668 0 ,1736 0,1806 0 ,1877 0 , 1949 0,2022 0 ,2096 0 ,2171 0,2247 0,2324 0,2481
10 0 ,10 0,1056 0 ,1113 0 ,1172 0 ,1233 0,1295 0 ,1359 0 ,1424 0 ,1490 0,1558 0 ,1627 0 ,1698 0 ,1770 0,1843 0 ,1917 0,1993 0,2069 0 ,2147 0 ,2225 0,2385
11 0,09 0,0965 0,1022 0 ,1081 0,1141 0,1204 0,1268 0,1334 0 ,1401 0,1469 0,1540 0 ,1611 0,1684 0,1758 0 ,1834 0 ,1911 0 ,1989 0,2068 0,2148 0,2311
12 0,08 0,0888 0,0946 0 ,1005 0,1066 0,1 128 0,1193 0 ,1259 0 ,1327 0,1397 0,1468 0 ,1540 0 ,1614 0 , 1690 0 , 1767 0 ,1845 0 ,1924 0 ,2005 0 ,2086 0,2253
13 0,08 0,0824 0,0881 0,0940 0,1001 0,1065 0 ,1130 0 ,1197 0,1265 0 ,1336 0,1408 0,1482 0 ,1557 0 ,1634 0 ,1712 0 ,1791 0 ,1872 0,1954 0 ,2037 0,2206
14 0,07 0,0769 0,0826 0 ,0885 0,0947 0,1010 0,1076 0,1143 0,1213 0,1284 0,1357 0 ,1432 0 ,1509 o ,1587 · 0,1666 0 ,1747 0 ,1829 0,1912 0,1997 0,2169
15 0,07 0,0721 0,0778 0,0838 0,0899 0 ,0963 0 ,1030 0,1098 0,1168 0,1241 0 ,1315 0,1391 0,1468 0 ,1547 0,1628 0,1710 0 ,1794 0,1878 0 ,1964 0,2139
16 0,06 0,0679 0,0737 0,0796 0,0858 0,0923 0 ,0990 0,1059 0,1130 0 ,1203 0,1278 0,1355 0,1434 0,1514 0,1596 0,1679 0 ,1764 0,1850 0,1937 0,2114
17 0,06 0,0643 0,0700 0 ,0760 0,0822 0 ,0887 0 ,0954 0,1024 0,1096 0 ,1170 0,1247 0,1325 0 ,1405 0,1486 0 ,1569 0,1654 0,1740 0 ,1827 0 ,1915 0,2094
18 0 ,06 0,0610 0 ,0667 0,0727 0,0790 0,0855 0 ,0924 0 ,0994 0,1067 0 ,1142 0,1219 0 ,1298 0,1379 0,1462 0 ,1546 0,1632 0 ,1719 0,1807 0,1896 0 ,2078
19 0,05 0,0581 0 ,0638 0,0698 0 ,0761 0 ,0827 0 ,0896 0 ,0968 0 ,1041 0 ,1117 0 ,1195 0 ,1276 0 ,1358 0,1441 0 ,1527 0,1613 0, 1701 0 ,1791 0,1881 0 ,2065
20 0 ,05 0 ,0554 0 ,0612 0 ,0672 0,0736 0 ,0802 0,0872 0 ,0944 0 ,1019 0 ,1095 0,1175 0 ,1256 0,1339 0,1424 0 ,1510 0,1598 0,1687 0,1777 0,1868 0,2054

(1-(1+rt)Jr
Extended Table C: z: NPV/ Utokad Tabell C: z: nuvarde ( 1-( 1+jrY)/i
y 21% 22% 23% 24% 25% 26% 27% 28% 29% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75%
0,8264 0 ,8197 0 ,8130 0,8065 0,8000 0,7937 0 ,7874 0,7813 0,7752 0,7692 0,7407 0 ,7143 0 ,6897 0,6667 0,6452 0,6250 0 ,6061 0,5882 0 ,5714
2 1,5095 1,4915 1,4740 1,4568 1,4400 1,4235 1,4074 1,3916 1,3761 1,3609 1,2894 1,2245 1,1653 1,1111 1,0614 1,0156 0,9734 0,934 3 0 ,8980
3 2 ,0739 2,0422 2 ,0114 1,9813 1,9520 1,9234 1,8956 1,8684 1,8420 1,8161 1,6959 1,5889 1,4933 1,4074 1,3299 1,2598 1,1960 1,1378 1,0845
4 2,5404 2,4936 2 ,4483 2,4043 2,3616 2,3202 2,2800 2,2410 2 ,2031 2,1662 1,9969 1,8492 1,7195 1,6049 1,5032 1,4124 1,3309 1,2575 1,1912
5 2,9260 2,8636 2,8035 2,7454 2,6893 2 ,6351 2,5827 2,5320 2,4830 2,4356 2,2200 2,0352 1,8755 1,7366 1,6150 1,5077 1,4127 1,3280 1,2521
6 3,2446 3,1669 3,0923 3,0205 2,9514 2 ,8850 2,8210 2,7594 2,7000 2,6427 2,3852 2,1680 1,9831 1,8244 1,6871 1,5673 1,4622 1,3694 1,2869
7 3,5079 3,4155 3 ,3270 3,2423 3,1611 3,0833 3 ,0087 2,9370 2,8682 2,8021 2,5075 2,2628 2,0573 1,8829 1,7336 1,6046 1,4923 1,3938 1,3068
8 3 ,7256 3,6193 3,5179 3,4212 3,3289 3,2407 3,1564 3,0758 2,9986 2,9247 2,5982 2,3306 2 ,1085 1,9220 1,7636 1,6279 1,5105 1,4081 1,3182
9 3,9054 3,7863 3 ,6731 3,5655 3,4631 3,3657 3,2728 3,1842 3 ,0997 3,0190 2,6653 2,3790 2 ,1438 1,9480 1,7830 1,6424 1,5215 1,41 65 1,3247
10 4,0541 3,9232 3 ,7993 3,6819 3,5705 3,4648 3,3644 3,2689 3,1781 3,0915 2,7150 2,4136 2,1681 1,9653 1,7955 1,6515 1,5282 1,42 15 1,3284
11 4,1769 4,0354 3 ,9018 3,7757 3,6564 3,5435 3,4365 3,3351 3 ,2388 3, 1473 2,7519 2,4383 2,1849 1,9769 1,8035 1,6572 1,5322 1,4244 1,3305
12 4,2784 4,1274 3,9852 3,8514 3,7251 3,6059 3,4933 3,3868 3 ,2859 3,1903 2,7792 2,4559 2,1965 1,9846 1,8087 1,6607 1,534 7 1,4261 1,33 17
13 4,3624 4,2028 4,0530 3,9124 3,7801 3,6555 3,5381 3,4272 3,3224 3,2233 2,7994 2,4685 2,2045 1,9897 1,8121 1,6630 1,5362 1,4271 1,3324
14 4 ,4317 4,2646 4 ,1082 3,9616 3,8241 3,6949 3,5733 3,4587 3,3507 3,2487 2,8144 2 ,4775 2,2100 1,9931 1,8142 1,6644 1,5371 1,4277 1,3328
15 4 ,4890 4,3152 4 ,1530 4,0013 3,8593 3,7261 3,6010 3,4834 3 ,3726 3,2682 2,8255 2,4839 2,2138 1,9954 1,8156 1,6652 1,5376 1,4281 1,3330
16 4,5364 4,3567 4,1894 4,0333 3,8874 3,7509 3,6228 3,5026 3 ,3896 3,2832 2,8337 2,4885 2 ,2164 1,9970 1,8165 1,6658 1,5380 1,4283 1,3332
17 4,5755 4,3908 4 ,2190 4,0591 3,9099 3,7705 3,6400 3,5177 3 ,4028 3,2948 2,8398 2,4918 2,2182 1,9980 1,8171 1,6661 1,5382 1,4284 1,3332
18 4,6079 4,4187 4,2431 4,0799 3,9279 3,7861 3,6536 3,5294 3,4130 3,3037 2,8443 2,4941 2 ,2195 1,9986 1,81 75 1,6663 1,5383 1,4285 1,3333
19 4,6 346 4,4415 4,2627 4,0967 3,9424 3,7985 3,6642 3,5386 3,4210 3,3105 2,8476 2 ,4958 2,2203 1,9991 1,81 77 1,6664 1,5383 1,42 85 1,3333
20 4,6567 4,4603 4,2786 4,1103 3,9539 3 ,8083 3,6726 3,5458 3,4271 3,3158 2,8501 2,4970 2,2209 1,9994 1,8179 1,6665 1,5384 1,4285 1,3333

171

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