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 $ 210,000 $ 420,eee Initial Investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 290, eee $ 138,000 $ 42,000 $ 74,000 $ 390,eee $ 186, eee $ 24, 289 $ 54,eee The company's discount rate is 19% Click here to view Exhibit 12B-1 and Exhibit 128-2. 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. 3. Calculate the Internal rate of retum for each product. 4. Calculate the project profitabilty Index for each product. 5. Calculate the simple rate of return for each product. 6a. For each measure. Identify whether Product A or Product B is preferred. 6b. Based on the simple rate of return, Lou Barlow would likely: Complete this question by entering your answers in the tabs below. Req: Reg 2 Req3 Rey 4 Regs Req 6A Req 63 Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product B Product A years Payback period years Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value Calculate the internal rate of return for each product. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) Product A Product B Internal rate of return 96 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 Reg 3 Rey 4 Reg 5 Req 6A Red 65 Calculate the simple rate of return for each product. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) Product A Product B Simple rate of return Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Reg 68 For each measure, identify whether Product A or Product B is preferred. Net Present Profitability Payback Internal Rate Simple Rate of Value Index Period of Return Return Req 1 Reg 2 Req3 Reg 4 Reg 5 Red 6A Reg 63 Based on the simple rate of return, Lou Barlow would likely: Accept Product A Accept Product B Reject both products
