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	45%	.70
Cable Company	20%	.90
Real estate	15%	1.30
Technology companies	20%	1.50

1. What is the companys beta?
2. Assume that the risk-free rate is 6% and that the market risk premium is 5%. What is the holding companys required rate of return?

Problem 2

Surf Bicycles Inc. will manufacture and sell 250,000 units next year. Fixed costs will total $600,000, 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	500,000
Total variable costs	300,000
Contribution margin	200,000
Fixed costs	170,000
EBIT	30,000

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	2.5 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)	$6,000,000
Cost of goods sold	60% of sales
Debt ratio	50%

Calculate the following:

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:

Given:
Sales Growth Rate	25%
COGS / Sales	70%
Operating Expense / Sales	20%
Depreciation Expense (000)	$40
Interest Expense (000)	$20
Tax Rate	35%
Dividends (000)	$20

Calculate the following items for 20X1:

Income Statement (000)

20X0

20X1

Sales

2,000

Cost of goods sold

1,400

Gross profit

600

Operating costs

400

Depreciation expense

60

Net Operating Profit

160

Interest Expense

20

Earnings Before Taxes

140

Taxes

49

Net Income

91

Dividends

$20

Addition to Retained Earnings

$71

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 45% .70 Cable Company 20% .90 Real estate 15% 1.30 Technology companies 20% 1.50 1. 2. What is the company's beta? Assume that the riskfree 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 250,000 units next year. Fixed costs will total $600,000, 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 500,000 Total variable costs 300,000 Contribution margin 200,000 Fixed costs 170,000 EBIT 30,000 Calculate the new EBIT and percent change, assuming: 1. 2. Sales increase by 20% Sales decrease by 20% Problem 4 Given the following information: Total asset turnover Accounts receivable turnover Fixed asset turnover Inventory turnover (based on cost of goods sold) Current ratio Sales (all on credit) Cost of goods sold Debt ratio Calculate the following: Cash Accounts receivable Inventories Net fixed assets 2.5 times 25 times 5 times 5 times 2 $6,000,000 60% of sales 50% Total assets Current liabilities Longterm debt Total liabilities Common equity Total liabilities and common equity Problem 5 Given the following information: Given: Sales Growth Rate COGS / Sales Operating Expense / Sales Depreciation Expense (000) Interest Expense (000) Tax Rate Dividends (000) 25% 70% 20% $40 $20 35% $20 Calculate the following items for 20X1: Income Statement (000) Sales Cost of goods sold Gross profit Operating costs Depreciation expense Net Operating Profit Interest Expense Earnings Before Taxes Taxes Net Income Dividends Addition to Retained Earnings 20X0 2,000 1,400 600 400 60 160 20 140 49 91 $20 $71 20X1