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Answer questions 5 and 6 below. Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new
Answer questions 5 and 6 below.
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 18% 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) $170,000 380,000 Annual revenues and costs: $250,000 $350,000 Sales revenues $120,000 170,000 Variable expenses 34,000 76,000 Depreciation expense 70,000 50,000 Fixed out-of-pocket operating costs The company's discount rate is 16%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine Step by Step Solution
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