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)	$ 360,000.00	$ 530,000.00
Annual revenues and costs:
Sales revenues	$ 400,000.00	$ 510,000.00
Variable expenses	$ 180,000.00	$ 250,000.00
Depreciation expense	$ 72,000.00	$ 106,000.00
Fixed out-of-pocket operating costs	$ 85,000.00	$ 65,000.00

The companys discount rate is 19%.

Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor using tables.

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 3 decimal places.)

3.Calculate the internal rate of return for each product. (Round percentage answers 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.)

5. Calculate the simple rate of return for each product. (Round percentage answers 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.

For each measure, identify whether Product A or Product B is preferred.
Net Present Value	Profitability Index	Payback period	Internal rate of return

6b. Based on the simple rate of return, Lou Barlow would likely:

Accept Product A

Accept Product B

Reject both products