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 divisions return on investment (ROI), which has exceeded 22% 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) $ 370,000 $ 570,000 Annual revenues and costs: Sales revenues $ 400,000 $ 480,000 Variable expenses $ 180,000 $ 214,000 Depreciation expense $ 74,000 $ 114,000 Fixed out-of-pocket operating costs $ 88,000 $ 68,000 The companys discount rate is 20%.

1. Calculate the project profitability index for each product.

2. Calculate the simple rate of return for each product.

3. For each measure, identify whether Product A or Product B is preferred.