csu 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