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 18% 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)	$	170,000		$	380,000
Annual revenues and costs:
Sales revenues	$	250,000		$	350,000
Variable expenses	$	120,000		$	170,000
Depreciation expense	$	34,000		$	76,000
Fixed out-of-pocket operating costs	$	70,000		$	50,000

The companys discount rate is 16%.

Click here to viewExhibit 13B-1andExhibit 13B-2, to determine the appropriate discount factor using tables.

Required:

1.	Calculate the payback period for each product.(Round your answers to 2 decimal places.)

2.	Calculate the net present value for each product.(Round discount factor(s) to three decimal places.)

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 three decimal places. Round your answers to 2 decimal places.)

5.	Calculate the simple rate of return for each product.(Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.)

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:
	Accept Product A Accept Product B Reject both products