1. The income statement reports net profit of €52 million. It covers FY2026, which is a period of activity.
2. The balance sheet reports cash of €30 million at the end of FY2026. It shows the company's financial position at one reporting date.
3. Northline generated €40 million from operations, reported a net investing outflow of €110 million, and a net financing inflow of €50 million. The resulting change was:

   €40m - €110m + €50m = -€20m

   Opening cash of €50 million therefore fell to €30 million.

4. The summary does not contain the reconciliation between net profit and operating cash flow. A detailed cash flow statement and its notes would show items such as changes in receivables, inventory, payables, and non-cash expenses. The available figures establish the €12 million difference but do not identify its causes.
5. A purchase of equipment normally appears under investing activities.

The manager has confused an accounting result with a movement in cash. Net profit was positive, operating cash flow was lower than profit, and investment spending caused total cash to fall despite the financing inflow.

Gross margin = €320m / €800m = 40.0%

Operating margin = €80m / €800m = 10.0%

Net margin = €52m / €800m = 6.5%

Northline's operating margin is one percentage point above the 9.0% reference value.

Current assets equal cash, receivables, and inventory:

Current assets = €30m + €90m + €160m = €280m

Current liabilities equal payables and short-term debt:

Current liabilities = €140m + €60m = €200m

Current ratio = €280m / €200m = 1.40

Quick ratio = (€280m - €160m) / €200m = 0.60

The current ratio is below the 1.60 reference value. The quick ratio is also below its 0.90 reference because a large share of current assets consists of inventory.

Total liabilities = €140m + €60m + €260m = €460m

Liabilities to assets = €460m / €800m = 57.5%

Equity to assets = €340m / €800m = 42.5%

Northline uses more liability financing than the 50.0% reference value.

Average inventory = (€140m + €160m) / 2 = €150m

Inventory turnover = €480m / €150m = 3.20 times

Inventory days = 365 / 3.20 = 114.1 days

Inventory remains in the business about 29 days longer than the 85-day reference value.

Average total assets = (€740m + €800m) / 2 = €770m

Asset turnover = €800m / €770m = 1.04

Operating cash flow as a share of sales = €40m / €800m = 5.0%

Both measures are below their reference values.

Conditional approval can be defended. Northline's 10.0% operating margin is above the reference value and operating cash flow remains positive. The strongest concern is liquidity: the quick ratio is 0.60, inventory takes approximately 114 days to sell, and operating cash flow represents only 5.0% of sales. Leverage is also higher than the reference value. Before lending, the bank should examine how long different inventory items have remained unsold, the collection of receivables, and a cash-flow forecast showing how Northline would service the new debt. Approval or rejection could also be defended if the decision uses the evidence consistently and states the condition that changes the conclusion.

Using the unrounded present values:

NPV = +€33,822.81

The project has a positive NPV. On the stated cash-flow estimates and 7% required return, the NPV rule supports acceptance.

The expected receipts recover the €200,000 investment, provide the required 7% annual return, and create approximately €33,823 of additional value measured at time 0. The NPV is a valuation result, so it does not create a separate €33,823 receipt.

The revised timeline is:

Revised NPV = +€28,680.14

Moving €90,000 from time 2 to time 3 reduces NPV by €5,142.68. The amount received is unchanged, but waiting an additional year reduces its value at time 0. The revised NPV remains positive.

Time 0 = -€320,000 - €30,000 - €20,000 = -€370,000

Annual operating cash flow = €150,000 - €25,000 - €18,000 = +€107,000

Year 4 total = €107,000 + €40,000 - €10,000 = +€137,000

At a 9% discount rate:

NPV = -€2,097.22

IRR = approximately 8.75%

NPV is negative and IRR is below the 9% required return. Both rules support rejection on the stated assumptions.

By the end of year 3, Northline has recovered €321,000 and still needs €49,000. Assuming the €107,000 operating cash flow arrives evenly during year 4:

Payback = 3 years + €49,000 / €107,000 = 3.46 years

Payback shows that the initial outlay is recovered during year 4. Northline has provided no maximum acceptable payback, so the measure does not produce an independent accept-or-reject conclusion. The project is close to financial break-even, which makes the cash-flow assumptions worth investigating.

Both projects have positive NPVs and IRRs above the 10% required return. If the projects were independent and Northline could undertake both, both would satisfy the NPV and IRR rules.

The projects are mutually exclusive in this exercise. NPV ranks Alpha first because it creates approximately €60,768 more value. IRR and payback rank Beta first because it produces a higher percentage return and recovers its smaller initial outlay sooner.

Under the base-case assumptions and without a funding constraint, Northline should select Project Alpha because it has the higher NPV.

The revised Alpha cash flows are:

The new information reverses the NPV ranking. If the implementation team's forecast is more credible than the base case, Northline should choose Project Beta. Before approval, management should request evidence supporting Alpha's installation schedule and the €350,000 annual cash-flow estimate, particularly the amount achievable in year 1. Since Beta is now the recommended project, the same scrutiny applies to its €300,000 initial cost and €110,000 annual cash flows.

The analyst's note contains the following problems:

1. Net profit does not confirm strong cash generation. Northline earned €52 million, generated €40 million of operating cash flow, and experienced a €20 million fall in cash.
2. A current ratio of 1.40 does not prove liquidity is adequate. It is below the 1.60 reference value. The quick ratio of 0.60, inventory days of 114, and operating cash flow equal to 5.0% of sales all strengthen the liquidity concern.
3. The feasibility study cost is sunk. Northline excludes the €45,000 payment while continuing to use the study's forecasts.
4. Depreciation creates no project cash flow in this case. The case excludes tax. A full model may include a tax effect from depreciation.
5. The lost rental income is an opportunity cost. Accepting the project removes €18,000 of annual cash income.
6. Alpha's base-case ranking does not survive the slower rollout. Its NPV falls from +€109,452.91 to -€49,638.00, while Beta retains a positive NPV of €48,685.20.

Northline should select Project Beta unless management can provide convincing evidence that Project Alpha will achieve the base-case rollout. Alpha creates more value under the original forecast, with an NPV of €109,453 compared with €48,685 for Beta. The implementation team's forecast changes Alpha's year 1 cash flow and reduces its NPV to -€49,638. Beta then has the higher NPV, IRR, and speed of recovery. The decision therefore depends on the timing and amount of Alpha's first-year cash benefit. Before committing funds, management should provide a tested installation schedule and evidence supporting the operational savings expected during the rollout. Northline should also examine its liquidity because the quick ratio, inventory days, and operating cash flow are weaker than the reference values.

1. The profit is recorded on day 50, when the goods are sold. The cash arrives on day 90, when the customer pays.
2. Cash conversion cycle = 50 days in inventory + 40 days for the customer to pay - 20 days for the supplier to wait = 70 days
3. The retailer pays €200,000 on day 20 and receives €260,000 on day 90. Its cash is €200,000 below its starting level for 70 days, from day 20 to day 90. The number of days equals the cash conversion cycle. By day 90 the cash is €60,000 above the starting level, which is the profit.
4. With twice the orders, the profit becomes €120,000 and the cycle stays at 70 days. The cash waiting in the cycle doubles: cash is €400,000 below its starting level for 70 days.
5. New cycle = 50 + 40 - 0 = 90 days. Cash is €200,000 below its starting level from day 0 to day 90. Every day the supplier stops waiting lengthens the cycle by one day, so the retailer funds the wait for 20 more days.
6. A sample answer: Each batch earns a profit, but the retailer pays before its customers do. With twice the orders it must fund €400,000 for 70 days instead of €200,000, and the profit arrives only on day 90. Growth can therefore create a cash problem even when every sale is profitable, unless the retailer has the funding for the extra cash that waits.

1. Cost of waiting = 2 months x 1% x €5.0m = €0.1m
2. The 90-day offer pays €0.2m more (€5.2m - €5.0m) and costs about €0.1m of waiting, so it is better by about €0.1m if the chain pays on day 90.
3. Each extra month of waiting costs 1% x €5.0m = €0.05m. The extra price of €0.2m covers €0.2m / €0.05m = 4 months of waiting beyond day 30, which is day 150. The offer stops being better if the chain pays more than 60 days late.
4. The gym collects €480 x 1,000 = €480,000 on the first day. After four months it has spent 4 x €30,000 = €120,000 and holds €360,000. It still has to pay 8 x €30,000 = €240,000 of costs, which is the float. The remaining €120,000 is the profit for the year (€480,000 - 12 x €30,000).
5. Paying €200,000 would leave €160,000, which is €80,000 less than the €240,000 of costs still to pay. It cannot do so safely. The most it can distribute without relying on new members is the €120,000 of profit.

1. Variable: fruit, cups, and the card fee on each sale. Fixed: pitch rent and licence, which stay the same whether the stall sells 100 or 500 drinks in the month.
2. Contribution per drink = €4.00 - €1.50 = €2.50
3. Break-even volume = €1,000 / €2.50 = 400 drinks
4. At 350 drinks: 350 x €2.50 - €1,000 = -€125. At 600 drinks: 600 x €2.50 - €1,000 = +€500.
5. The owner is wrong. Revenue of €1,400 must cover the variable costs of 350 x €1.50 = €525 as well as the €1,000 of fixed costs. Total costs are €1,525, so the stall loses €125. The stall needs 50 more drinks to break even.
6. At 600 drinks and €4 the profit is €500. At €3.50 the contribution is €2.00, so the stall needs (€500 + €1,000) / €2.00 = 750 drinks. Volume must rise by 25% (from 600 to 750) to make up a price cut of 12.5% (from €4.00 to €3.50). The volume increase is larger than the price cut because each drink now leaves less to cover fixed costs.

1. Retailer: contribution = €50 - €20 = €30; break-even = €6,000 / €30 = 200 items. Partner: contribution = €50 - €35 = €15; break-even = €1,500 / €15 = 100 items.
2. Monthly profit:

3. The profits are equal when €30 x q - €6,000 = €15 x q - €1,500, so q = 300 items. Both options earn €3,000 at that volume.
4. Either option can be defended. At 200 items the retailer's own store breaks even and the partner option earns €1,500. At 400 items the retailer's own store earns €6,000 and the partner option €4,500. If the retailer is confident of selling more than 300 items it should run the store itself. If it fears the low end, the partner option protects profit. Before deciding it should check how credible the forecast is, how long the lease and the partner contract commit it, and what the partner would charge if sales rise.
5. The retailer's own store has a higher fixed cost (€6,000 against €1,500) and a higher contribution per item (€30 against €15). Each extra item adds €30 instead of €15, and each missing item removes the same amount, so profit moves twice as far when sales change.

1. Before the cut, contribution = €5.00 - €2.00 = €3.00. After the cut, €4.50 - €2.00 = €2.50.
2. Before: 1,000 x €3.00 = €3,000. After, with 1,100 coffees: 1,100 x €2.50 = €2,750. Monthly contribution falls by €250.
3. €3,000 / €2.50 = 1,200 coffees, which is 20% more than today.
4. No. At most 1,100 coffees can be served, and 1,100 x €2.50 = €2,750 is below €3,000. Matching the price cannot restore the contribution.
5. "Cost plus 40%" is cost-based. "Because the rival does" is competition-based. The quiet seat with a power socket is value-based.
6. At €4.00 the contribution is €2.00. A new customer adds €2.00. An existing customer who switches reduces the contribution by €1.00 (from €3.00 to €2.00). The offer adds profit if 2 x new customers is greater than 1 x switching customers, so the café needs more than one new customer for every two existing customers who switch.

1. Enterprise value = €8m x 7 = €56m. Value for the owners = €56m - €12m = €44m.
2. Net debt is -€6m, so value for the owners = €56m + €6m = €62m. Net cash is added to enterprise value.
3. Possible reasons: faster expected growth, steadier profit, higher margins, less need for new investment, a stronger brand, or a buyer that can use the chain to grow elsewhere.
4. The three parts:
   • The comparables range (€36m to €52m) and the discounted cash flow range (€38m to €50m) overlap between €38m and €50m. The asset-based range (€20m to €26m) sits well below both.
   • A sample answer: offer up to about €45m, in the middle of the overlap, and give least weight to the asset-based method because it ignores what the chain earns. The seller's €60m is above all three ranges.
   • A buyer who can cut costs, sell through its own shops, or remove a competitor may pay more, because the value of the chain depends on the buyer.
5. All three methods are hard. Comparables need similar companies that already have sales, and discounted cash flow needs forecasts of a future that nobody can yet measure. The asset-based value is small. The price would mostly reflect a promise of the future, which is what a buyer is willing to pay for success that has not happened yet.