II. Can you fill in the following present value table? Problem 4: Present Value
ID: 2478461 • Letter: I
Question
II. Can you fill in the following present value table?
Problem 4: Present Value Tables—Fill 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 month’s 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
Nevin’s 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 Company’s breakeven point in revenue?______________
How much revenue would be necessary to make an operating income of $100,000?
PV of $1
PV of Annuity of $1
Periods 9%
Periods 9%
1
1
2
2
3
3
Explanation / Answer
Problem 1
NPV= -96000 + 25000/1.1 + 25000/1.1^2 + 22000/1.1^3 + 25000/1.1^4 + 35000/1.1^5=$2,724.94
Problem 2
Sales Budget
Production Budget
Problem 3
1.contribution margin ratio. = 376,500/840000= 44.82%
2.Nevin Companys breakeven point in revenue = 321500/44.82%= 717290.84
3. revenue would be necessary to make an operating income of $100,000=(321500+100000)/44.82%=$940,398.41
0 1 2 3 4 5 Initial cost -96000 Cost savings 25000 25000 25000 25000 25000 Tuneup cost -3000 Salvage value 10000 Cash flow -96000 25000 25000 22000 25000 35000