EXERCISE 1: Company A and Company B are both selling $2.5 million worth of goods. Company A's PV ratio is 0.40 while B's is 0.60. Company B's fixed costs are $1 million, which puts the business at a competitive disadvantage versus A, which has $500,000 in fixed costs.

Questions 1. On the basis of the above information, if revenues were to increase by 20% for both businesses next year, how much profit before taxes would each generate?

2. On the basis of the above information, if revenues were to decrease by 20% for both 'business, next year, how mud" profit before taxes would each generate?

3 Because of the varying cost structures, discuss the implications that the PV ratio has on both companies profit performance

EXERCISE 2: CALCULATING THE PV RATIO AND THE BREAK-EVEN POINT With the information outlined below, calculate the following:

1. Profit

2. Break-even point in revenue

3. Cash break-even point

Depreciation $ 30,000

Plant direct wages 100,000

Plant supervision 60.000

Advertising 30.000

Plant insurance 20,000

Sales commissions 100,000

Office supplies-, 3,000

Revenue 550,000

Overtime 30,000

Rent 35,000

Property taxes 10,000

Raw materials 100,000