Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a fiveyear 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 computed the following cost and revenue estimates for each product:

Initial investment:

Cost of equipment $($zero salvage value$)$

Annual revenues and costs:

Sales revenues

Variable expenses

Depreciation expense

Fixed out$-$of$-$pocket operating costs

Product A Product B

$$170,000,$$$380,000$

$$250,000,$$$350,000$

$$120,000,$$$170,000$

$$34,000,$$$76,000$

$$70,000,$$$50,000$

The company's discount rate is $16\%.$

Click here to view Exhibit $14$B$-1$ and Exhibit $14$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

Calculate each product's payback period.

Calculate each product's net present value.

Calculate each product's internal rate of return.

Calculate each product's profitability index.

Calculate each product's simple rate of return.

$6$ a$.$ 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?