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 24% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B $ 330,000 $ 515,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 370,000 $ 168,000 $ 66,000 S 82, 880 $ 470,000 $ 218,000 $ 103,000 $ 68,000 The company's discount rate is 15% Click here to view Exhibit 148-1 and Exhibit 148 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. Reg 1 Reg 2 Req3 Reg 4 Reg 5 Reg 6A Reg 68 Calculate the simple rate of return for each product. (Round your percentage answers to 1 decimal place le. 0.123 should be considered as 12.3%) Product A 96 Product B 96 Simple rate of return 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. Reg 1 Reg 2 Req 3 Reg 4 Reg 5 Reg 6A Reg 68 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 Retum Return 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. Reg 1 Reg 2 Reg 3 Reg 4 Req 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 Accept Product B Reject both products
