Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

help on all the requirements Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products

help on all the requirements image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
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 21% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product Product B Initial investment: Cost of equipment (zero salvage value) $ 270,000 $ 480,000 Annual revenues and costs: Sales revenues $ 320,000 $ 420,000 Variable expenses $ 148,000 $ 198,000 Depreciation expense $ 54,000 $ 96,000 Fixed out-of-pocket operating costs $ 77,000 $ 57,000 The company's discount rate is 19% Click here to view Exhibit 138-1 and Exhibit 138-2, 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 project 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, Lou Barbow would likely. Complete this question by entering your answers in the tabs below. Req4 Reg 6 Req 6B Reg 1 Reg 2 Reg 3 Reqs Calculate the project profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Project profitability index 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 21% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B $ 270,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 320,000 $ 148,000 $ 54,000 $ 77,000 $ 480,000 $ 420,000 $ 198,000 $ 96,000 $ 57,000 The company's discount rate is 19%. Click here to view Exhibit 138-1 and Exhibit 138-2, 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 project 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, Lou Barlow would likely: Complete this question by entering your answers in the tabs below. Req 6A Req 1 Reg 2 Reg 3 Reg 4 Reqs Reg 6B Calculate the simple rate of return for each product. (Round your answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product A Product B Simple rate of return % % 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 21% 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) $ 270,000 $ 480,000 Annual revenues and costs: Sales revenues $ 320,000 $ 420,000 Variable expenses $ 148,000 $ 198,000 Depreciation expense $ 54,000 $ 96,000 Fixed out-of-pocket operating costs $ 77,000 $ 57,000 The company's discount rate is 19%. Click here to view Exhibit 13B1 and Exhibit 138-2, 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 project 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 is preferred. 6b. Based on the simple rate of return, Lou Barlow would likely: Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Reg 4 Reg 5 Req 6A Req 6B For each measure, identify whether Product A or Product B is preferred. Net Present Profitability Payback Internal Rate Simple Rate of Value Index Period of Return Return

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions