Financial Management
FIN3701
Semester 1
ASSESSMENT 2
, QUESTION 1
1.1. Calculate the operating break-even point for structures A, B and C.
Operating break even = Fixed operating costs
Price – Variable cost/unit
Structure A
QOBE = 45 000 = 4 054 units
25 – 13.90
Structure A
QOBE = 30 000 = 4 000 units
17.5 – 10
Structure C
QOBE = 90 000 = 5 294 units
29 – 12
Other things equal, a firm that chooses operating and financial structures that result
in greater total fixed costs will have a higher break-even quantity of sales.
1.2 Arrange/show the operational risk of the three structures from least to most risky.
DOL (measure of operational risk) is highest at low levels of sales and declines at
higher levels of sales.
Ranking from least risky to most risk C, B and A
FIN3701
Semester 1
ASSESSMENT 2
, QUESTION 1
1.1. Calculate the operating break-even point for structures A, B and C.
Operating break even = Fixed operating costs
Price – Variable cost/unit
Structure A
QOBE = 45 000 = 4 054 units
25 – 13.90
Structure A
QOBE = 30 000 = 4 000 units
17.5 – 10
Structure C
QOBE = 90 000 = 5 294 units
29 – 12
Other things equal, a firm that chooses operating and financial structures that result
in greater total fixed costs will have a higher break-even quantity of sales.
1.2 Arrange/show the operational risk of the three structures from least to most risky.
DOL (measure of operational risk) is highest at low levels of sales and declines at
higher levels of sales.
Ranking from least risky to most risk C, B and A
