Question
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 divisions return on investment (ROI), which has exceeded 25% 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) | $ | 340,000 | $ | 540,000 | |
| Annual revenues and costs: | |||||
| Sales revenues | $ | 390,000 | $ | 490,000 | |
| Variable expenses | $ | 176,000 | $ | 226,000 | |
| Depreciation expense | $ | 48,000 | $ | 90,000 | |
| Fixed out-of-pocket operating costs | $ | 84,000 | $ | 68,000 | |
|
| |||||
| The companys discount rate is 18%. |
| Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tables. |
| 3. | Calculate the internal rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and Round discount factor(s) to 3 decimal places.) |
| 4. | Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.) |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Companies Audit Investigations And Community Enterprise Act 2004 UK
Authors: The Law Library
1st Edition
1987582950, 978-1987582956
