FIN 370 Week 2 Individual Assignment Chapter Study Questions

Prepare responses to the following chapter study questions located in Chapter 14 of the Financial Management: Principles and Applications text, by Keown.

  1. 14-1
  2. 14-3
  3. 14-4
  4. 15-12A
  5. 15-13A

14-1.

What are financial markets? What function do they perform? How would an economy be worse off without them?

 Basically financial markets are the key ways which help people in selling, purchasing, as well as trading financial securities for example bonds and stocks. …………………………..

14-3.

 

Distinguish between the money and capital markets.

 

Money markets involve people both lending and borrowing for an agreed period of time;…

14-4.

What major benefits do corporations and investors enjoy because of the existence of organized security exchanges?

 

Key advantages which both corporations and investors can enjoy include the guarantee that their investment is provided at a reasonable market value, as well as the capability to help companies in raising new capital. It (1) offers a nonstop market, (2) sets up and advertises fair prices for securities, (3) and helps in raising new capital. Therefore, price instability is minimized.

15-12A.

(Break-even point) You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure information for this company. All of it pertains to an output level of 10 million units. Using this information, find the break-even point in units of output for the firm.

Return on operating assets= 25%
Operating asset turnover= 5 times
Operating assets= $20 million
Degree of operating leverage= 4 times
 

 (See Excel spreadsheet)

15-13A.

(Break-even point and operating leverage) Allison Radios manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $126. Allison Radios incurs fixed costs of $540,000 per year.

  1. What is the break-even point in units for the company?
  2. What is the dollar sales volume the firm must achieve in order to reach the break-even point?
  3. What would be the firm’s profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units?
  4. Find the degree of operating leverage for the production and sales levels given in part (c).
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