Option #1: Mastery Finance Calculations
Problem 1
Hologram Corporation is a holding company with four main subsidiaries. The percentage of its business coming from each of the subsidiaries, and their respective betas, are as follows:
|
Subsidiary |
Percentage of Business |
Beta |
|
Water Company |
60% |
.70 |
|
Cable Company |
25% |
.90 |
|
Real estate |
10% |
1.30 |
|
Technology companies |
5% |
1.50 |
- What is the company’s beta?
- Assume that the risk-free rate is 6% and that the market risk premium is 5%. What is the holding company’s required rate of return?
Problem 2
Surf Bicycles Inc. Will manufacture and sell 200,000 units next year. Fixed costs will total $500,000, and variable costs will be 60% of sales. The bicycles will sell for $200 each.
The firm wants to achieve a level of earnings before interest and taxes of $250,000. How many units must they sell to achieve that result?
Problem 3
Alpha Electronics has the following income statement:
|
Sales |
400,000 |
|
Total variable costs |
240,000 |
|
Contribution margin |
160,000 |
|
Fixed costs |
140,000 |
|
EBIT |
20,000 |
Calculate the new EBIT and percent change, assuming:
- Sales increase by 20%
- Sales decrease by 20%
Problem 4
Given the following information:
|
Total asset turnover |
2.0 times |
|
Accounts receivable turnover |
25 times |
|
Fixed asset turnover |
5 times |
|
Inventory turnover (based on cost of goods sold) |
5 times |
|
Current ratio |
2 |
|
Sales (all on credit) |
$5,000,000 |
|
Cost of goods sold |
70% of sales |
|
Debt ratio |
60% |
Calculate:
|
Cash |
|
|
Accounts receivable |
|
|
Inventories |
|
|
Net fixed assets |
|
|
Total assets |
|
|
Current liabilities |
|
|
Long-term debt |
|
|
Total liabilities |
|
|
Common equity |
|
|
Total liabilities and common equity |
Problem 5
Given the following information:
|
Sales Growth Rate |
25% |
|
COGS / Sales |
65% |
|
Operating Expense / Sales |
20% |
|
Depreciation Expense (000) |
$40 |
|
Interest Expense (000) |
$10 |
|
Tax Rate |
40% |
|
Dividends (000) |
$20 |
Calculate the following information for 20X1:
|
Income Statement (000) |
|||
|
20X0 |
20X1 |
||
|
Sales |
1500 |
||
|
Cost of goods sold |
975 |
||
|
Gross profit |
525 |
||
|
Operating costs |
300 |
||
|
Depreciation expense |
40 |
||
|
Net Operating Profit |
185 |
||
|
Interest Expense |
10 |
||
|
Earnings Before Taxes |
175 |
||
|
Taxes |
70 |
||
|
Net Income |
105 |
||
|
Dividends |
$20 |
||
|
Addition to Retained Earnings |
$85 |
