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 25% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B $ 370,000 $ 530,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 400,000 $ 180,000 $ 74,000 $ 85,000 $ 510,000 $ 250,000 $ 106,000 $ 72,000 The company's discount rate is 19%. Click here to view Exhibit 14B-1 and Exhibit 14B-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 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, which of the two products should Lou's division accept? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3 Req 4 Reg 5 Req 6A Req 6B Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period years years Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Reg 3 Reg 4 Req 5 Reg 6A Req 6B Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product B Product A $ Net present value Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Req 4 Req 5 Req 6A Req 6B Calculate the internal rate of return for each product. (Round your percentage answers to 1 decimal place i.e. 0.123 should be considered as 12.3%) Product A % Product B % Internal rate of return Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Reg 4 Req 5 Req 6A Req 6B Calculate the profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Profitability index Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3 Req 4 Req 5 Req 6A Reg 6B Calculate the simple rate of return for each product. (Round your percentage answers 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 Req 5 Req 6A Reg 6B For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period Internal Rate Simple Rate of of Return Return Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Req 6A Reg 6B Based on the simple rate of return, which of the two products should Lou's division accept? Accept Product A O Accept Product B Reject both products EXHIBIT 14B-1 Present Value of Sl; 1 (1+r) n 0.467 0.225 0.557 0.083 Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 4% 5% 6% 7% 0.962 0.952 0.943 0.935 0.925 0.907 0.890 0.873 0.889 0.864 0.840 0.816 0.855 0.823 0.792 0.763 0.822 0.784 0.747 0.713 0.790 0.746 0.705 0.666 0.760 0.711 0.665 0.623 0.731 0.677 0.627 0.582 0.703 0.6450.592 0.544 0.676 0.614 0.558 0.508 0.650 0.585 0.527 0.475 0.625 0.497 0.444 0.601 0.530 0.469 0.415 0.577 0.505 0.442 0.388 0.555 0.481 0.417 0.362 0.534 0.458 0.394 0.339 0.513 0.436 0.371 0.317 0.494 0.416 0.350 0.296 0.475 0.396 0.331 0.277 0.456 0.377 0.312 0.258 0.439 0.359 0.294 0.242 0.422 0.342 0.278 0.226 0.406 0.326 0.262 0.211 0.390 0.310 0.247 0.197 0.375 0.295 0.233 0.184 0.361 0.281 0.220 0.172 0.347 0.268 0.207 0.161 0.333 0.255 0.196 0.150 0.321 0.243 0.185 0.141 0.308 0.231 0.174 0.131 0.208 0.142 0.097 0.067 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 | 0.840 0.833 0.826 0.820 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.7180.706 0.694 0.683 0.672 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.467 0.451 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0.540 0.502 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.2490.233 0.218 0.204 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.209 0.194 0.180 0.167 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.1020.092 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.270 | 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 | 0.069 0.060 0.052 0.045 0.039 0.034 0.250 0.212 0.1800.153 0.130 0.111 0.095 0.081 0.069 0.059 | 0.051 0.044 0.038 0.032 0.028 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 | 0.043 0.037 0.031 0.026 0.022 0.019 0.1990.164 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 | 0.026 0.022 0.018 0.015 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.013 0.170 0.138 0.112 0.091 0.074 | 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.012 0.010 0.158 0.126 0.1020.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013 0.010 0.008 0.146 0.116 0.092 0.074 | 0.059 0.047 0.038 0.030 0.024 0.0200.016 0.013 | 0.010 0.009 0.007 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.0160.012 0.010 | 0.008 0.006 0.005 0.004 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 | 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.0120.009 0.007 0.005 0.004 | 0.003 0.003 0.046 0.032 0.022 0.015 0.0110.008 0.005 0.0040.003 0.002 0.001 0.001 0.001 0.000 0.000 23% 24% 25% 0.813 0.806 0.800 0.661 0.650 0.640 0.537 0.524 0.512 0.437 0.423 0.410 0.355 0.341 0.328 0.289 0.275 0.262 0.235 0.222 0.210 0.191 0.179 0.168 0.155 0.144 0.134 0.126 0.116 0.107 0.103 0.094 0.086 0.076 0.069 0.068 0.061 0.055 0.055 0.049 0.044 0.045 0.040 0.035 0.036 0.032 0.028 0.030 | 0.026 0.023 0.024 0.021 0.018 0.020 0.017 0.014 0.0160.014 0.012 0.013 0.011 0.009 0.011 0.009 0.007 0.009 0.007 0.006 0.007 0.006 0.005 0.006 0.005 0.004 0.005 0.004 0.003 0.003 0.002 0.003 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.001 0.000 0.000 0.000 0.292 0.004 EXHIBIT 14B-2 Present Value of an Annuity of $1 in Arrears: 11[1-1(1+r)n] Periods 1 2 3 4 2.798 2.951 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 | 2.402 2.361 2.322 2.283 3.630 3.546 3.46 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 | 3.352 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 | 4.772 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 9.383 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.1225.8425.583 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 11.11810.380 | 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 12.166 | 11.274 10.477 | 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 12.659 11.690 10.828 10.0599.372 8.756 8.201 7.702 7.250 6.840 6.467 | 6.128 13.134 | 12.085 | 11.158 10.336 9.604 8.950 8.365 | 7.8397.366 6.938 6.550 6.198 13.590 12.462 | 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 6.687 6.312 14.451 | 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359 14.857 13.489 | 12.303 11.272 10.371 9.580 8.883 | 8.266 7.718 7.230 6.792 6.399 15.247 | 13.799 | 12.550 11.469 | 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7.372 6.906 6.491 16.330 14.643 13.211 11.987 10.935 | 10.027 9.237 8.548 7.943 7.409 6.935 6.514 16.663 14.898 | 13.406 12.137 11.051 10.116 9.307 8.602 7.984 7.441 | 6.961 6.534 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.0227.470 6.983 6.551 17.292 15.372 13.765 12.409 | 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 19.793 17.159 15.046 13.332 11.925 10.757 | 9.779 | 8.951 8.244 7.634 7.105 6.642 16% 17% 18% 19% 0.862 0.855 0.847 0.840 1.605 1.585 1.566 1.547 2.246 2.210 2.174 2.140 2.743 2.690 2.639 3.274 3.199 3.127 3.058 3.685 3.589 3.498 3.410 4.039 3.922 3.812 3.706 4.344 4.207 4.078 3.954 4.607 4.451 4.303 4.163 4.833 4.659 4.494 4.339 5.029 4.836 4.656 4.486 5.197 4.988 4.793 4.611 5.342 5.118 4.910 4.715 5.468 5.229 5.008 4.802 5.575 5.324 5.092 4.876 5.668 5.40 5.162 4.938 5.749 5.475 5.222 4.990 5.818 5.534 5.273 5.033 5.8775.584 5.316 5.070 5.929 5.628 5.3535.101 5.973 5.665 5.384 5.127 6.011 5.696 5.410 5.149 6.044 5.723 5.432 5.167 6.073 5.746 5.451 5.182 5.766 5.467 5.195 6.118 5.783 5.480 5.206 6.136 5.798 5.492 5.215 6.1525.810 5.502 5.223 6.166 5.820 5.510 5.229 6.177 5.829 5.517 5.235 6.233 5.871 5.548 5.258 20% 21% 22% 23% 24% 25% 0.833 0.826 0.820 0.813 0.806 0.800 1.528 1.509 1.492 1.474 1.457 1.440 2.106 2.074 2.042 2.011 1.981 1.952 2.589 2.540 2.494 2.448 2.404 2.362 2.991 2.926 2.864 | 2.803 2.745 2.689 3.326 3.245 3.167 3.092 3.020 3.605 3.508 3.416 3.327 3.242 3.161 3.837 3.726 3.619 3.518 3.421 3.329 4.031 3.905 3.786 3.673 3.566 3.463 4.192 4.054 3.923 3.799 3.682 3.571 4.327 4.177 4.035 3.902 3.776 3.656 4.439 4.278 4.127 3.985 3.851 3.725 4.533 4.362 4.203 4.053 3.912 3.780 4.611 4.432 4.265 4.108 3.962 3.824 4.675 4.489 4.315 4.153 4.001 3.859 4.730 4.536 4.357 4.189 4.033 3.887 4.775 4.576 4.391 4.219 4.059 3.910 4.812 4.608 4.419 4.243 4.080 3.928 4.843 4.635 4.442 4.263 4.097 3.942 4.870 4.657 4.460 4.279 4.110 3.954 4.891 4.675 4.476 4.292 4.121 3.963 4.909 4.690 4.488 4.302 4.130 3.970 4.925 4.703 4.499 4.311 4.137 3.976 4.937 4.713 4.507 4.318 4.143 3.981 4.948 4.514 4.323 4.147 3.985 4.956 4.728 4.520 4.328 4.151 3.988 4.964 4.734 4.524 4.332 4.154 3.990 4.970 4.739 4.528 4.335 4.157 3.992 4.975 4.743 4.531 4.337 4.159 3.994 4.979 4.746 4.534 4.339 4.160 3.995 4.997 4.760 4.544 4.347 4.166 3.999 6.097 4.721