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1. Calculate the payback period and the net present value for each product. 2. Calculate the internal rate of return and project profitability for each
1. Calculate the payback period and the net present value for each product.
2. Calculate the internal rate of return and project profitability for each product.
3. Calculate the simple rate of return for each product.
4. For each measure, identify whether Product A or Product B is preferred.
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 25% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product AProduct B Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs 340,000 540,000 $ 390,000 490,000 $ 176,000 226,000 $ 68,000 108,008 $84,000 64,000
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