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 20% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B $ 220,000 $ 410,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 280,000 $ 130,000 $ 44,000 $ 73,000 $ 380,000 $ 182,000 $ 82,000 $ 60,000 The company's discount rate is 14%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. EXHIBIT 12B-1 Present Value of $1; 12 4 Periods 4% 5% 6% 7% 8% 9% 10% 1% 2% 3% 14% 5% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 0962 0.952 0.943 0.935 0926 0.97 0.909 0.901 0.893 0885 0.87 0.870 0.862 0.855 0.847 0840 0.833 0.826 0820 0.813 0.806 0800 2 0925 0.907 0890 0873 0857 0842 0826 0.82 0.797 0783 0769 0756 0.743 0.731 0718 0706 0694 0.683 0672 0661 0650 0640 10889 0864 0.840 0816 0794 0.72 0751 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 0.564 0551 0.537 0524 0512 10855 0823 0.792 0763 0735 0708 0683 0659 0636 0613 0.592 0.572 0552 0.534 0.516 0499 0482 0467 0451 0437 0423 0410 0822 0784 0.747 0713 0.681 0.650 0621 0593 0567 0543 0.519 0.497 0476 0.456 0437 0419 0402 0386 0370 0355 0.341 0328 0790 0746 0705 0.666 0630 0.596 0564 0.535 0.507 0480 0.456 0432 0410 0.390 0370 0352 0335 0.319 0303 0289 0.275 0262 10.760 0.71 0.665 0623 0.583 0.547 0.513 0.482 0.452 0425 0.400 0.376 0.354 0333 0.314 0.296 0279 0.263 0.249 0.235 0.222 0210 10731 0677 0.627 0.582 0.540 0502 0.467 0434 0.404 0376 0351 0327 0305 0.285 0.266 0249 0.233 0.218 0204 0191 0179 0168 0703 0645 0.592 0544 0.500 0460 0424 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 0180 0167 0155 0144 0134 10 0676 0614 0558 0.508 0463 0422 0.386 0352 0322 0295 0270 0.247 0227 0208 0191 0176 0162 0.149 0.137 0126 0116 0107 11 0650 0585 0527 0475 0429 0388 0.350 037 0287 0261 0237 0215 0195 0178 0162 0148 0135 0123 012 0103 0.094 0.086 10625 0557 0.497 0444 0397 0.356 0.319 0.286 0.257 0231 0.208 0.187 0168 0152 0.137 0.124 012 0102 0092 0083 0076 0069 0601 0530 0.469 0415 0.368 0.326 0290 0.258 0.229 0.204 0182 0163 0145 0130 016 0104 0.093 0084 0075 0.068 0.061 0055 10.57 0.505 0.442 0388 0340 0299 0263 0232 0.205 0181 0160 0.141 0125 01 0099 0088 0078 0069 0062 0055 0049 0044 5 0.555 0481 047 0.362 0315 0275 0239 0209 0183 0160 0140 0123 0108 0.095 0.084 0074 0065 0.057 0.051 0045 0040 0.035 16 0534 0458 0394 0.339 0292 0252 0218 0188 0163 0.141 0123 0107 0.093 0.081 0071 0062 0054 0.047 0042 0036 0032 0028 0513 0436 0.371 0317 0270 0231 0198 0170 0.146 0125 0108 0093 0080 0069 0060 0052 0045 0.039 0.034 0030 0026 0023 10494 0.416 0.350 0.296 0.250 0.212 0180 053 0130 011 0.095 0.081 0069 0.059 0.051 0.044 0.038 0032 0028 0.024 0.021 0018 10475 0396 0.331 0277 0.232 0194 0164 0138 0116 0098 0.083 0.070 0060 0051 0043 0037 0031 0027 0023 0.020 0.07 0014 10456 037 0312 0258 0215 0178 0149 0124 0104 0087 0073 0061 0051 0043 0037 0031 0026 0022 0019 0016 004 0012 21 0.439 0359 0.294 0242 0199 0164 0135 012 0.093 007 0064 0053 0044 0.037 0031 0026 0022 0.018 005 003 001 0009 22 0422 0342 0.278 0226 0184 0150 0123 0101 0083 0068 0056 0046 0038 0032 0026 0022 0018 005 0013 001 0.009 0007 23 10406 0326 0.262 021 0170 0.138 012 0.091 0074 0060 0049 0040 0033 0027 0022 0018 0.015 0.012 0.010 0.009 0.007 0006 24 0.390 0310 0.247 0197 0.158 0126 0102 0.082 0066 0053 0.043 0.035 0028 0.023 0.019 005 0.03 0010 0008 0.007 0.006 0005 10375 0.295 0.233 0184 0.146 016 0092 0074 0059 0047 0.038 0030 0024 0020 0016 003 0010 0009 0007 0.006 0.005 0004 26 0361 0281 0220 072 0135 0106 0.084 0066 0053 0042 0033 0026 0021 007 0014 0011 0009 0.007 0006 0005 0004 0003 27 0347 0268 0.207 0161 0125 0.098 0076 0060 0047 0037 0029 0023 0018 0014 001 0009 0007 0006 0005 0004 0.003 0002 28 0.333 0255 0196 0150 016 0090 0069 0054 0042 0033 0.026 0020 0016 0012 0010 0008 0.006 0.005 0004 0003 0002 0002 0321 0243 0185 0141 0107 0082 0063 0048 0037 0029 0022 007 0014 001 0008 0006 0005 0004 0003 0002 0002 0002 30 0.308 0.231 0174 0131 0.099 0075 0.057 0044 0033 0026 0.020 0015 0012 0009 0007 0.005 0.004 0003 0.003 0.002 0002 0.001 40 0208 0142 0097 0067 0046 0032 0022 0015 001 0008 0005 0004 0003 0002 0001 0001 0001 0000 0000 0000 0000 0000 EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears Periods 1 11 12 9 14 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800 1.886 1.859 1.833 1.808 1.783 1.759 1736 1.713 1.690 1.668 1647 1.626 1.605 1.585 1.566 1547 1.528 1.509 1.492 1.474 1457 1.440 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1952 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362 4.452 4.329 4.212 4100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 6.002 5.786 5.582 5.389 5.206 5,033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 7.435 7108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 8.111 7722 7360 7024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.0194.833 4.659 4.494 4.3394.192 4.054 3.923 3.799 3.682 3.571 8.760 8.306 7.887 749971396.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4177 4.035 3.902 3.776 3.656 .385 8.863 8.384 7943 7.536 7.1616.814 6.492 6.194 5.918 5.660 5.421 5.1974.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 9.986 9.394 8.853 8.358 7.904 7.487 7103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780 10.563 9.899 9.295 8.745 8.244 7.786 7367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 11.118 10.380 9.712 9.108 8.559 8.061 7606 7191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001 3.859 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7549 7120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910 12.659 11.690 10.828 10.059 9.372 8.7568.201 7702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 4.110 3.954 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5167 4.925 4.703 4.499 4.311 4.137 3.976 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143 3.981 15.622 14.094 12.783 11.654 10.675 9.8239.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985 15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7.943 7409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3.992 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 4.339 4.160 3.995 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 18 20 25 26 27 28 166 29 30 40 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 project profitability index for each product