The correct answer is A (€8 million). The change in cash is calculated by adjusting net income for changes in accounts receivable and accounts payable:

1. Net Income: €3,000,000
2. Adjustment for Accounts Receivable: The increase in accounts receivable (€2,000,000) is subtracted from net income, as it represents accrued income not yet received in cash.
3. Adjustment for Accounts Payable: The decrease in accounts payable (€3,000,000) is also subtracted from net income, as it represents accrued expenses paid in cash.

Calculation:

• Change in cash = Net Income - Increase in Accounts Receivable - Decrease in Accounts Payable
• Change in cash = €3,000,000 - €2,000,000 - €3,000,000 = -€2,000,000

Ending Cash Balance:

• Year 1 ending cash balance + Change in cash = €10,000,000 + (-€2,000,000) = €8,000,000

Why not B or C?

• B (€12 million): Incorrectly adds the increase in accounts receivable to net income.
• C (€18 million): Incorrectly adds both the increase in accounts receivable and the decrease in accounts payable to net income.