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4. Calculate the project profitability index for each product. 5. Calculate the simple rate of return for each product. Lou Barlow, a divisional manager for
4. Calculate the project profitability index for each product.
5. Calculate the simple rate of return for each product.
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 20% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product 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 $ 260,000 470,000 s 310,000 410,000 $ 144,000 194,000 $ 52,000 94,000 $ 76,000 58,000 The company's discount rate is 18% Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tablesStep by Step Solution
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