Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

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. 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) $ 290,000 $ 490,000 Annual revenues and costs: Sales revenues $ 340,000 $440,000 Variable expenses $ 154,000 $206,000 Depreciation expense $ 58,000 $ 98,000 Fixed out-of-pocket operating costs $ 79,000 $ 59,000 The company's discount rate is 15%. Ignore income taxes. Note that Excel or a financial calculator must be used to calculate items 2-4. 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. 6a. For each measure, identify whether Product A or Product B is preferred. Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Req 4 Req 6A Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product years Product B years Payback period Req1 Req 2 > Reg 1 Reg 2 Reg 3 Reg 4 Req 6A Calculate the net present value for each product. Product Product B Net present value Req 1 Real Reg 2 Rega Reg 3 Req3 | Rega Req 6A Calculate the internal rate of return for each product. (Round percentage answers to 1 decimal place.) Product A Product B Internal rate of return % Reg 1 Reg 2 Reg 3 Reg 4 Req 6A Calculate the project profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Project profitability index Reg 1 Reg 2 Req3 Reg 4 Reg 6A For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index P ayback Period Internal Rate of Return

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Deadly Audit A Buckeye Barrister Mystery

Authors: David M Selcer

1st Edition

0988194368, 978-0988194366

More Books

Students also viewed these Accounting questions

Question

Prepare for a successful job interview.

Answered: 1 week ago

Question

Describe barriers to effective listening.

Answered: 1 week ago

Question

List the guidelines for effective listening.

Answered: 1 week ago