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 (RO), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product $10.000 $ 510,000 Initial investments Cast of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 350,000 $164,000 362,000 $ 81,000 $ 400,000 $ 210,000 $ 102,000 $ 65,000 The company's discount rate is 18%. Click here to view Exhibit 148.1 and Exhibit 148_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 A or Product B is preferred. 65. Based on the simple rate of return, which of the two products should Lou's division accept? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg4 Reg 5 Req6A Reg 66 Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product Payback period yours years Req2 > Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Reg 4 Reqs Reg 6 Reg 6B Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req3 Reg 4 Reg 5 Req 6A Reg 6B Calculate the internal rate of return for each product. (Round your percentage answers to 1 decimal place le 0.123 should be considered as 12.3%) Product A Product B Internal rate of return % % Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Req 5 Reg 6 Req 68 Calculate the profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Profitability index Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Reg 4 Reqs Reg 6 Reg 68 Calculate the simple rate of return for each product. (Round your percentage answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product A Product B Simple rate of return 96 Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Reg 4 Reg 5 Reg 6 Reg 68 For each measure, Identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period Internal Rate Simple Rate of of Return Return Complete this question by entering your answers in the tabs below. Reg 1 Req2 Reg 3 Reg 4 Reg 5 Req 6A Req 65 Based on the simple rate of return, which of the two products should Lou's division accept? Accept Product A Accept Product B Reject both products
