Complete Problems E8-12 and P8-23 in the textbook and present your responses in an Excel spreadsheet.

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:

initial investment product A product B

cost of equipment (zero salvage value)...... $170,000 $380,000

annual revenues & costs:

sales revenues...... $250,000 $350,000

variable expenses..... $120,000 $170,000

deprecation expense..... $34,000 $76,000

fixed out of pocket operating expenses..... $70,000 $50,000

The company's discount rate is 16%.Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the internal rate of return for each product. 4. Calculate the project profitability index for each product. 5. Calculate the simple rate of return for each product. 6. Which of the two products should Lou's division pursue? Why?