Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
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 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 company's discount rate is 16%. Click here to view Exhibit 12B-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? Reg 1 Reg 2 Reg 3 Req 4 Req 5 Req 6A Reg 6B Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period years years WE Reg 6A Req 6B Reg 1 Reg 2 Reg 5 Reg 3 Req 4 Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value Reg 6A Req 6B Reg 5 Reg 4 Reg 3 Reg 1 Reg 2 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 retum Req 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Req 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 % Req1 Reg 2 Reg 3 Reg 4 Reg 5 Req 6A Req 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

IT And European Bank Performance

Authors: E. Beccalli

1st Edition

0230006949, 9780230006942

More Books

Students also viewed these Accounting questions

Question

=+3. Who are the brand's competitors?

Answered: 1 week ago

Question

11.7 Discuss competency-based pay.

Answered: 1 week ago