i.mheducation.com/#/epub/sn,20d88#epubcfl(%2F6%2F332%5l3data 8880b03a446058 43c03f53a5a2% PROBLEM 723 Comprehensive Problem rt'J L074, [14' Lo72. rL'J Lo73, rt'J Lo75,r14J LO76 F4/u2F2%5l3dat 4. Lou Barlow. a divisional manager for Sage Company. has an opportunity to manufacture and sell one of two new 0 products for a ve-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 Initial investment: Cost of equipment (zero salvage value) $170,000 Annual revenues and costs: Sales revenues $250000 Variable expenses 3120.000 Depreciation expense $34,000 Fixed out-opocket operating costs $70,000 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 protability 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? Product B $380,000 $350,000 $l70,000 376.000 $50,000 Page 388 PROBLEM 724 Slmple Rate of Return; Payback Period; Internal Rate of Return LO71, Lo73, LO76 n The Elberta Fruit Farm of Ontario always has hired transient workers to pick its annual cherry crop. Janessa