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 22% 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)	$	350,000		$	550,000
Annual revenues and costs:
Sales revenues	$	390,000		$	470,000
Variable expenses	$	178,000		$	210,000
Depreciation expense	$	70,000		$	110,000
Fixed out-of-pocket operating costs	$	87,000		$	67,000

The companys discount rate is 20%.

Click here to view Exhibit 13B-1 and Exhibit 13B-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 return for each product.

4. Calculate the project profitability 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:

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 22% 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) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs 350,000 550,000 390,000 470,000 178,000 210,000 $ 70,000 110,000 $ 87,000 67,000 The company's discount rate is 20%. Click here to view Exhibit 138-1 and Exhibit 13B-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 return for each product. 4. Calculate the project profitability 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 6A Req 1 Req 2 Req 4 Req 5 Req 3 Req 6B Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period years years Req1 Req 2 Req 6A Req 1 Req 2 Req 3 Req 4 Req 5 Req 6B 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 Req 5 Req 3 Req 4 Req 6A Req 1 Req 2 Req 6B Calculate the internal rate of return for each product. (Round your answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product A Product B Internal rate of return Req 6B Req 6A Req 5 Req 4 Req 3 Req 2 Req 1 Calculate the project profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Project profitability index Req 2 Req 3 Req 4 Req 5 Req 6A Req 1 Req 6B Calculate the simple rate of return for each product. (Round your answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) ProductA Product B Simple rate of return Req 6B Req 4 Req 5 Req 6A Req 3 Req 2 Req 1 For each measure, identify whether Product A or Product B is preferred. Net Present Profitability Payback Internal Rate Simple Rate of Period Return of Return Value Index Req 6B Req 5 Req 6A Req 3 Req 4 Req 2 Req 1 Based on the simple rate of return, Lou Barlow would likely: Accept Product A Accept Product B OReject both products