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Week Two Individual Assignment 1


Week Two Individual Assignment

University of Phoenix

Week Two Individual Assignment 2

.1 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.
.b 14-3
.d 15-12A
What are financial markets? What function do they perform? How would an economy be
worse off without them?
Financial markets are essentially the primary means which assists people in purchasing,
sell, and trading financial securities such as bonds and stocks. Financial markets basically direct
funds from agents to lenders, and vice-versa. Some forms of financial markets are money
markets, bond markets, capital markets, commodity markets, and even insurance markets.
Borrowers would need to locate their own lenders if there were not financial markets. However,
banks make this much easier for borrowers by taking deposits and lending out money in an
organized way. Financial markets basically distribute the supply of savings from a surplus to
ones with a deficit. The economy would surely experience difficulties devoid of a financial
market system due to a lack of overall wealth. Everyday business activities would lack necessary
Distinguish between the money and capital markets.
Money markets entail people both borrowing and lending according to a prescribed
period of time; in addition, they involve short-term maturities. On the other hand, capital markets
maintain long-term maturities, which greatly assist in companies being able to raise necessary

Week Two Individual Assignment 3

capital. Basically, money markets make transactions possible utilizing short-term financial
means, and capital markets make transactions possible utilizing long-term financial means.
What major benefits do corporations and investors enjoy because of the existence of
organized security exchanges?
Major benefits in which both corporations and investors can enjoy include the
reassurance that their investment was provide at a fair market value, and the capacity to assist
companies in raising new capital. It (1) provides a continuous market, (2) establishes and
publicizes fair prices for securities, (3) and assists in raising new capital. As such, price volatility
is minimized.
(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)

(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 breakeven point?

Week Two Individual Assignment 4

3. What would be the firms 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).
(see Excel spreadsheet)