Financial Management Financial Markets Are Essay

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In addition, the exchange provides an avenue for recourse if some remedy is required for a fraudulent transaction.

Problem 15-12.

The operating asset turnover of 5 times on operating assets of $20 million implies a total sales of $100 million. The return on operating assets being 25% indicates net profit of $5 million. The total costs therefore are $95 million.

DOL = Contribution Margin / Operating Margin

In this case, the operating margin is 5%, so the contribution margin would be 20%. This indicates that COGS is 80% of revenues or $80 million. That leaves $15 million as fixed costs.

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With a COGS of $8 per unit ($80 million / 10 million) and contribution per unit of $2 the break-even volume would be:

$15 million / $2 = 7.5 million units.

Problem 15-13.

a) the breakeven point in units for the company is as follows:

$180 - $126 = Contribution = $54 per unit. Breakeven = $540,000 / 54 = 10,000 units.

b) Dollar sales to reach breakeven would be 10,000 * $180 = $1.8 million

c) at the different levels the firm's income statement would be as follows:

Output

12,000

15,000

20,000

Revenue

2,160,000

2,700,000

3,600,000

COGS

1,512,000.....

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