Finance

14-1. What are financial markets What function do they perform How would an economy be worse off without them

Financial market is a place where buyer and seller easily interact with each other by trading different stocks, bonds and securities. The role of financial market is very pivotal in building the economy of any country and it is the barometer of the economy. The functions of financial markets are stated below
It provides a hub where investors buy and sell their securities.

Financial market helps in transfer of funds from one place to other and transfer the risk associated with.
Without financial market it is not possible for and financial analyst to assess the performance of any countrys economy. If financial market not exists than it is not feasible for an investor to evaluate the risk, inflation, prices of any commodity, etc.

14-3. Distinguish between the money and capital markets.
Money market is a place where short term liquid securities are transact. The life of those securities is less than a year such as CDs, T-Bills, Commercial Paper, etc. In money market the role of banks, mutual funds, etc is very significant.

Capital market is a place where long term liquid securities are transacts in form of bonds, stocks, etc. In addition, capital market is a place where either the corporate firms or government raises its long term funds.

c. 14-4. What major benefits do corporations and investors enjoy because of the existence of organized security exchanges

Some of the major benefits that the corporations and investors enjoy due to the existence of organized security exchanges are stated below

It provides a guarantee that over the investment of the potential investor.

It provides a space where to the businesses where they motivate the potential investors to invest in any particular security.
 
Where new companies raises its capital through an IPO.
15-12A.

COMPUTATION OF BREAKEVEN IS STATED BELOW

STEP 1 COMPUTE MARGIN
Margin x Operating asset turnover  Return on operating assets
Margin x 5  0.25
Margin  0.05

STEP 2 COMPUTE SALES
Sales  Operating assets  Operating asset turnover
Sales  20,000,000  5
Sales  20,000,000 x 5
Sales  100,000,000

STEP 3 COMPUTE EBIT
EBIT  Margin x Sales
EBIT  0.05 x 100,000,000
EBIT  5,000,000

STEP 4 COMPUTE REVENUE BEFORE FIXED COSTS
Revenue before fixed costs  Degree of operating leverage x EBIT
Revenue before fixed costs  4 x 5,000,000
Revenue before fixed costs  20,000,000

STEP 5 COMPUTE TOTAL VARIABLE COST (TVC)
 Sales  TVC  20,000,000
100,000,000  TVC  20,000,000
TVC  80,000,000

STEP 6 COMPUTE FIXED COSTS
Revenue before fixed costs  Fixed costs  5,000,000
20,000,000  Fixed Costs  5,000,000
Fixed Costs  15,000,000

STEP 7 COMPUTE SALES PER UNIT  VARAIBLE COST PER UNIT
Price per unit  Sales  Units
Price per unit  100,000,000  10,000,000
Price per unit  10
Variable cost per unit  TVC  Units
Variable cost per unit  80,000,000  10,000,000
Variable cost per unit  8

STEP 8 COMPUTE BREAKEVEN
Sales  Variable expenses  Fixed expenses  Profits
10Q  8Q  15,000,000  0
2Q  15,000,000
Q  15,000,000  2 per unit
Q  7,500,000 Units
e.      15-13A.

A. BREAK-EVEN POINT (In Units)
Sales  Variable expenses  Fixed expenses  Profits
180Q  126Q  540,000  0
54Q  540,000
Q  540,000  54 per unit
Q  10,000 units

B. BREAK-EVEN POINT (In Dollars)
Breakeven units x Selling Price per Unit
10,000 Units x 180
1,800,000

C.
UNITS12,00015,00020,000Sales  1802,160,0002,700,0003,600,000Less Variable Cost  1261,512,0001,890,0002,520,000Contribution Margin648,000810,0001,080,000Less Fixed Costs540,000540,000540,000EBIT108,000270,000540,000

D.
UNITS12,00015,00020,000Contribution Margin (a)648,000810,0001,080,000EBIT(b)108,000270,000540,000Degree of Operating Leverage (a b)6 times3 times2 times