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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$)$ $ $210,000$ $ $420,000$

Annual revenues and costs:

Sales revenues $ $290,000$ $ $390,000$

Variable expenses $ $138,000$ $ $186,000$

Depreciation expense $ $42,000$ $ $84,000$

Fixed out$-of-$pocket operating costs $ $74,000$ $ $54,000$

The company$s$ discount rate $is19\%.$

Click here $to$ view Exhibit $14B-1$ and Exhibit $14B-2,to$ 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 $Aor$ Product $Bis$ preferred.

$6b.$ Based $on$ the simple rate $of$ return, which $of$ the two products should Lou$s$ division accept?