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Calculate the simple rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.) Lou Barlow,
Calculate the simple rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.) |
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: Sales revenues Variable expenses $250,000 $350,000 $120,000 $170,000 34,000 76,000 $ 70,000 50,000 Fixed out-of-pocket operating costs The company's discount rate is 16%
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