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 Producto $ 340,000 $540,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 380,000 $ 170,000 $ 68,000 $ 66,00 $ 460,000 $206,00 $100,000 $ 66,000 5 The company's discount rate is 20% Click here to view Exhibit 123.1 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 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? EXHIBIT 12B-1 Present Value of $1,1(1+) %8 %6 10% % % %EZ 1060 6060 9 S 8800 6600 Periods 496 5% 695 7% 11% 12% 13% 14% 1996 16% 17% 18% 19% 20% 21% 22% 24% 25% 1 0.962 0 952 0943 0.935 0 926 0917 089308850877 0.8700 862 0.855 0.847 0840 0.833 0.826 0820 0.813 0.806 0.500 2 0925 0907 0.8900 873 0857 0.842 0.826 0.812 0.797 07830 769 0.756 0.743 0.731 0.718 0.7060 6910 683 067206610 650 0.610 3 0.8890.8660 840 0.816 0.794 0.772 07510231 0.7120693 0.675 0.658 0.641 06240 6090593 057905640551 0.537 05240512 4 0855 0.823 0.792 0.7630.735 0.708 0.68306590636 06130592057205520 5340 516 0 4990482 04670 451 0437 0.423 0410 5 0.822 0.784 0.747 0.713 0.681 0.650 0621 0593056710543 0.519 0.497 0.476 0.456 0437 0419 0402 0.386 0.370 03550 3410.328 6 0.790 0.746 0.705 066606300396 0361 05350 50704800.456 0.432 0-4100390 03700332 0.335 0319 0303 02890275 0.262 7 0.7600.11 0665 0.623 0.383 054705130482 0452 0.425 0.400 0.376 03540333 03140.296 0.279 02630 249 0.2350 222 0.210 0731 0677062705820 540 0902 04670434 0.40103760351 03270 305 0.285 0.266 0.249 0233 0.218 0.204 0.191 0.179 0.168 9 0.703 0.6450.5920 5440 3000 4600 424 0 191 0 361 0333 0.308 0.284 0.263 0243 0.2250 2090.1940 1800 1670 1550 144 0.134 10 0.676 061405580.508 0463 0422 0 386 0352 0.322 0.295 0270 0247 0227 0.2080.1910 176 0.1620149 0.1370 1260.116 0.107 11 0650 10 383 05270475 0.429 0388 0.350 0.117 0 2870 261 0.237 0.215 0.1950.1780 1620.148 0.135 0.123 0.112 0.1030.0940086 12 0.625 0.557049204410 1970356 0319 02860257023102080187 0.168 01520170124011201020092008300760069 13 0.0010510 069 00150 3680326 0.200 0.258 0.2290 2040 1820 163 0.1430 130 0.116 0.101 0.0930084 0 075 0.068 0.0610055 14 0.577 | O SOS 0442 0 388 O 3400 2990 263 0.2320 2030 1310 1600 1410 1250 111 0.0780 069 00620055 0.01900H 15 0 555 0 481 0.417 0.362 0.315 0 2750219 0.209 0.1830 1600 14001230108 0.093 0.0040074 0.065005700510045 0.0400035 16 0334 0438 039 03390 292 0252 021801880.169 01410123010700930000/1006200510047 00420036 00320028 17 0513 0.436 0.371 031702200 2311 0.1980 1700146 0.125 0.108 0.09) 30 T0 069 0060 052 0045 0.039 0.04 0.030 0.026 0021 0.494 04160300 2960 2500 2120 1800 1530 130011100950081 0.069009900510010038 0020.028 00240021001 19 0425 0 3960331 02770 2120 1940 1640.138 0.116 0.098 008300700060005100430037005100270 033 00200017 0014 20 0456 00:1202580215 0.178 0.149 0.1240 1010087 0073 0.051 0051 001110017 00010026007220019 0016 0.014 0.012 21 0.439 0.359 0.294 02420 199 0.164 0135 0 11200930077006410053001400370031 0026 0.0220018 00150013 0.011 0009 22 04220142027802260184 0.15001230101 00830068 0.056 00160080012 0026 0,022 0.018 0,015 0.03 0.00 0.0090.007 23 0406 0 526 0 2620210 1700 138 0.112 0.091 0074 0.060 0.019 001000330027002200180015001200100009 0.0070006 14 0 39001002470 197035 01261020820.066 0.0530.0430035 0150023 0019 00150013 0010 0.008 0.007 0.006 0.005 25 0375 0295 0.1840 146 0.116 0.09200740059 0017003800300024002000160013 0010000900070.006 0.0050001 26 0361 028102200120 1350 1060084006600530012 001100260 021 00170014001100000007 0.006 0.0050004 0.003 27 0.207 0.161 0125 00076006000000370 019 002 0018 00140011 0.0090007000600050100100030002 0333 0.23 0.190 0 1500 116 00 0.009 0.054 0012 0.0330026 0.0200016001200100008 0006 0.005 0.00 0.00 0002 29 0321 0 24 0 185 01410101 0082 0.0630045 003700900220 017 00140011 0008 00060003 00040003000200020002 30 0.308 0231 01 0.131 009900750.057000400310026002000150012 0.0090.00 0.00 0.000 0.00 0.003 0.002 0.002 0.001 40 0 200 1421 00 006710046 0.032 10.02200150011 0.008 0.005 0.000 0.003 0002 0.001 0.001000100000000000000000000 TEZ BE EEZO 8920 LEO ST 7000 Tune inh EXHIRIT 128-2 Present Value of an Annuity of S1 in Arrears, 14(1-(1/(1+17')) % % 1 E E S 9 | 6 Periods 49 5% 6% 7% 9% 10% 1196 12% 13% 14% 1996 169 1795 18% 19% 20% 21% 2296 23% 24% 25% 1 0962 0.952 0940 9350 926 09170909090108930.885 087708700862083508170840083308260820001308060.800 2 1886 189 1833 1808 1783 1.259 1.736 1713 1690 1668 1607 1626 1605 1.58515661547152815091492141414571440 3 2.775 2.723 2623 2624 2577125312487 2.4442402 2361232222832246 2210 2174 2140 2106 20742042 2011 1981 1952 4 3.630354634653387 3312324031703 102 3.03729742914285527982702690 26392.589 240 2494 244824042.362 4452432942124 100 39933 890 3.191 3.696 3.6053517 34333352327431993.127 30582991 2926 2.864 280327452.689 5.2425.0764917 1.767 4623 4486 4.355 4231 4111 3 998 1.889 3.784363535893298 3410 3.3263 245 16% 3.092 3.0202951 7 6.0025.78655825389 5.2065033 4.868 47124561 44234.288416040393922 381237063 60535083416332732423.161 S 673364636210 597157475.535 5335 146 4.968 47994639 4.487 4 3444207 4078 395438373226361923.518 3.421JJ29 7.435 71086 802 65156247 5993323955333283 132494647724.6074451 430) 4.1634.001 3905 3.786 367335663.463 10 811127227.16070246.710 6 418 6145 5.889 5.650542632165 019 483146594.49143394192 4034 392379936823.571 11 8.7608 3067887749971396805 6 495620793938368734952450294836 4656 4.486 432741374015902 3.7763656 12 9385 8863838479137536716168146 1926 19659185.66034215197 4.988 4.793 16114439 4.2784127398538513725 13 9.986 9.394851587904748771036 7506424612258425583 532 5.11349104.715433341624.203 40530123.780 14 105619 8999 295 $745 8240736 736769826628 6 1026 0025172434685.2293008 402 4611442465 41033.962 3.824 15 11.118 10 30 97129.108 855920617606291681164626142584755753324 0924876 4675 44194315 415340013859 16 1165210318 10.1069 4411313313782173179 6978660462655 9545665505 516249113710 451635741894031887 17 12.166 1127010429.763 912230 1022254971206796372)601757495.475522299047533576 091021940393910 18 126591160010 828 100917287568201702725061406467 6.125381833230124608441942430NO 3928 19 13 114 120801 158100900495036525197366693355906 19037131165.0704841 46302200097912 20 15900216212670 10.990 2912985147746970256626250392956250101 16571460 427941103954 21 14029120011764 10 10 100179292 868970505622102667631239733.653384312291 4675 1176 4 292412190 22 14:45111612042 11 06110201094428123176766517067436399601136934105149946904 102110970 23 1495222109 22 10 109088836266/2006,79216906034123 167000004247976 24 15241111990123011169 109 7985338777068356607371634451511249301981 25 11362221094 1276311611065921432068736,464 609737665675 195 26 421431443234147985 151983 101750011826 10 10999917895690660916113059206956470570030151988 27 1610146411119 10.9310023 790171009561261361799349739710154990 2N 16661121110511011691074165166161203301E02 29 16915441391058101933006500X060061663370029 10 172920X1020512109 25 10XV05/65662225497906016039 40 1919920603302112321056602625950 1999 O OLO $161 ONS EOS 165 66 TOTERAPIA 666
