Exercise 14A-6 (Static) Basic Present Value Concepts [LO14-7] The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state's newest millionaire. By choosing the six winning numbers on last week's state lottery, Mr. Ormsby won the week's grand prize totaling $1.6 million. The State Lottery Commission indicated that Mr. Ormsby will receive his prize in 20 annual installments of $80,000 each. Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables. Required: 1. If Mr. Ormsby can invest money at a 12% rate of return, what is the present value of his winnings? (Enter your answer in dollars and not in millions of dollars.) Present value $ 688.610 Problem 14-23 (Static) Comprehensive Problem [LO14-1, LO14-2, LO14-3, LO14-5, LO14-6] 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: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 16%. Product A Product B $170,000 $380,000 $ 350,000 $170,000 $ 250,000 $ 120,000 $ 34,000 $ 76,000 $ 70,000 $ 50,000 Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor using tables. 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 profitability index for each product. 5. Calculate the simple rate of return for each product. 6a. For each measure, identify whether Product A or Product B is preferred. 6b. Based on the simple rate of return, which of the two products should Lou's division accept? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req S Req 6A Req 68