II. Can you fill in the following present value table?

Problem 4: Present Value TablesFill in

PV of $1		PV of Annuity of $1
Periods 9%		Periods 9%
1		1
2		2
3		3

Problem 1: Watson Manufacturing has an opportunity to invest $96,000 in a new machine. The new machine will result in cost savings of $25,000 in year 1, $25,000 in year 2, $25,000 in year 3, $25,000 in year 4, and $25,000 in year 5. The new machine will require a tune-up in year 3 costing $3,000. The salvage value of the machine will be $10,000 at the end of year 5. Watson's cost of capital is 10%. Create a table showing the cash flows in each year of the project and compute the NPV.

0	1	2	3	4	5

The NPV is: $_____________________Is the investment acceptable? ___________

BUDGETS
Johnson Company expects sales of 24,000 units in January, 26,000 units in February, and
28,000 units in March. The sales price per unit is $15. Create a sales budget.
Sales Budget	Jan	Feb	Mar	Total
Unit Sales
Price
Sales Revenue
Johnson wants to finish each month with 20% of the next months sales in
units. Create a production budget, assuming that the January beginning
inventory is 10,000 units, and April sales will amount to 30,000 units.
Production Budget	Jan	Feb	Mar	Total
Sales
Desired Ending Inven.
Total
Beginning Inventory
Units to Produce

Traditional Income Statement			Contribution Income Statement
Sales	840,000		Sales	840,000
Cost of Goods Sold	760,000		Total Variable Costs
Gross Profit	80,000		Contribution Margin
Selling & Admin Expenses	25,000		Total Fixed Costs
Operating Income	55,000		Operating Income

Nevins Cost of Goods Sold was 60% variable and 40% fixed. The Selling and Administrative Costs were 30% variable and 70% fixed. Convert the traditional income statement to a contribution income statement by filling in the statement above, on the right.

Using the contribution income statement, calculate the contribution margin ratio. _______

What is Nevin Companys breakeven point in revenue?______________

How much revenue would be necessary to make an operating income of $100,000?