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 |
1. What is the company’s beta?
2. 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:
1. Sales increase by 20%
2. 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 |
