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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 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 $136,000 186,000 Depreciation expense 38,000 80,000 Fixed out-of-pocket operating costs 74,000 54,000 The company's discount rate is 19% 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.) Answer is complete and correct Product A Product B 2.63 2.80 years years Payback period
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