fin500-Option #1: Mastery Finance Calculations
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 |
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Rating:
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Solution: Option #1: Mastery Finance Calculations