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Financial Management Financial Markets Are Essay
Pages:2 (585 words)
Sources:2
Subject:Mathematics
Topic:Financial Management
Document Type:Essay
Document:#80759782
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. 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
1,890,000
2,520,000
Contribution
648,000
810,000
1,080,000
Fixed Costs
540,000
540,000
540,000
Net Income
108,000
270,000
540,000
d) the degree of operating leverage is calculated by the percentage change in the operating income divided by the percentage change in sales. For example, the move from 12,000 to 15,000 delivers an increase in operating income of 150% with a 25% change in…
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