HW 8.4

ou 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 23% 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)	$	290,000		$	500,000
Annual revenues and costs:
Sales revenues	$	350,000		$	450,000
Variable expenses	$	160,000		$	210,000
Depreciation expense	$	58,000		$	100,000
Fixed out-of-pocket operating costs	$	80,000		$	60,000

The companys discount rate is 16%.

view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor using tables.

3. Calculate the internal rate of return for each product. Round percentage answers to 1 decimal place. 1 e discount factor(s) to 3 decimal places.) 1234 should be considered as 12.3% and round Product A Product B Internal rate of return 4. Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.) Product A ProductB Project profitability index 5. Calculate the simple rate of return for each product. (Round percentage answers to 1 decimal place, ie. 0.1234 should be considered as 12.3%.) ProductA Product Simple rate of returrn