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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
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 divisions return on investment (ROI), which has exceeded 24% each of the last three years. He has computed the cost and revenue estimates for each product as follows:
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 24% 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) $330.000 515,000 Annual revenues and costs $370,000 470,000 Sales revenues Variable expenses $168.000 218.000 46,000 88.000 Depreciation expense Fixed out-of-pocket operating costs 82,000 68.000 The Company's discount rate is 15% Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tables Required: 1. Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period 2.75 years 2.80 yearsStep by Step Solution
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