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 $17\%$ 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$)$ $ $180,000$ $ $390,000$

Annual revenues and costs:

Sales revenues $ $260,000$ $ $360,000$

Variable expenses $ $124,000$ $ $174,000$

Depreciation expense $ $36,000$ $ $78,000$

Fixed out$-$of$-$pocket operating costs $ $71,000$ $ $50,000$

The company$$s discount rate is $15\%.$

Click here to view Exhibit $7$B$-1$ and Exhibit $7$B$-2,$ 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.

$4.$ Calculate the project profitability index for each product.

$5.$ Calculate the simple rate of return for each product.