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 Product B $ 380,000 $ 575,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 410,000 $ 186,000 $ 76,000 $ 89,000 $ 490,000 $ 218,000 $ 115,000 $ 70,000 The company's discount rate is 20%. 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? EXHIBIT 14B-1 Present Value of Sl: 1 (1+r)n 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% 8% % 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 0.9620.952 0.943 0.935 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 0.813 0.806 | 0.925 0.9070.890 0.873 0.8570.8420.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.7180.706 0.694 0.683 0.672 0.661 0.650 0.889 0.864 0.840 0.816 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 0.537 0.524 0.855 0.823 0.792 0.763 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 0.437 0.423 0.822 0.784 0.747 0.713 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 0.355 0.341 0.790 0.746 0.705 0.666 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 0.289 0.275 0.760 0.711 0.665 0.623 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 0.235 0.222 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.351 | 0.327 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.703 0.645 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.676 0.614 0.558 0.508 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 0.126 0.116 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.1950.178 0.162 0.148 0.135 0.123 0.112 0.1030.094 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0.076 0.601 0.530 0.469 0.415 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 0.068 0.061 0.577 0.505 0.442 0.388 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 0.055 0.049 0.555 0.481 0.417 0.362 0.362 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 0.045 0.040 0.534 0.458 0.394 0.3390.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036 0.032 0.513 0.436 0.436 0.371 0.317 | 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 0.030 0.026 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0.475 0.396 0.331 0.277 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 0.0200.017 0.456 0.377 0.312 0.258 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 0.0160.014 0.439 0.359 0.294 0.242 0.1990.1640.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022 0.018 0.015 0.013 0.011 0.422 0.342 0.278 0.226 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 0.0110.009 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.0180.015 0.012 0.010 | 0.0090.007 0.390 0.310 0.247 0.197 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 0.007 0.006 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.0200.0160.013 0.0100.009 0.007 0.006 0.005 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.0110.009 0.007 0.006 0.005 0.004 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.0110.009 0.007 0.006 0.005 0.0040.003 0.333 0.255 0.1960.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 | 0.0160.0120.010 | 0.008 0.006 0.005 0.0040.003 0.002 0.321 0.243 0.185 0.141 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 0.00 0.002 0.002 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 | 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 25% 0.800 0.640 0.512 0.410 0.328 0.262 0.210 0.168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0.001 0.000 EXHIBIT 14B-2 Present Value of an Annuity of $1 in Arrears: 11[1-1(1+r)n] 11% 16% 17% 19% 2.589 5.747 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% 8% 9% 10% 12% 13% 14% 15% 18% 20% 21% 22% 23% 24% 25% 0.962 0.952 0.943 0.935 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 0.813 0.806 0.800 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 | 1.528 1.509 1.492 1.474 | 1.457 | 1.440 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1.952 3.630 3.546 | 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.9742.914 2.855 2.798 2.743 2.690 2.639 2.540 2.494 2.448 2.404 2.362 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.1993.127 3.058 2.991 2.9262.864 2.803 2.745 2.689 5.2425.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.8893.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 | 3.242 3.161 6.733 6.463 6.210 5.971 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.3394.192 4.054 | 3.923 3.799 3.682 3.571 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.0294.8364.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.1945.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 9.986 | 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.8425.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780 10.563 | 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.0025.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.8475.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001 3.859 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.9746.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 12.166 | 11.274 | 10.477 | 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910 12.659 | 11.690 10.828 10.059 9.372 8.756 8.2017.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 13.134 12.085 | 11.158 10.336 9.604 8.950 8.365 7.839 7.3666.938 6.550 6.1985.8775.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 | 3.942 13.590 12.462 | 11.470 10.594 | 9.818 9.129 8.514 7.963 7.469 | 7.025 6.623 6.259 5.9295.628 5.3535.101 4.870 4.65 4.460 4.279 4.110 3.954 14.029 12.821 | 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 6.687 6.3125.973 5.665 5.384 5.127 4.891 4.476 4.292 4.121 3.963 14.451 13.163 | 12.042 | 11.061 10.201 | 9.442 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 14.857 | 13.489 | 12.303 11.272 10.371 9.580 8.883 8.266 7.7187.230 6.399 6.044 5.723 5.167 4.925 4.703 4.499 4.311 4.137 3.976 15.247 | 13.799 12.550 | 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143 3.981 15.622 14.094 | 12.783 11.654 10.675 | 9.823 9.077 8.422 7.843 7.330 6.8736.464 6.097 5.7665.467 5.1954.948 4.721 4.514 4.323 4.147 3.985 15.983 14.375 13.003 11.826 10.810 | 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 16.330 14.643 13.211 | 11.987 10.935 10.027 | 9.237 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 16.663 | 14.898 13.406 12.137 11.051 | 10.116 | 9.307 | 8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 | 3.992 16.984 15.141 13.591 12.278 11.158 10.1989.370 8.650 8.0227.470 6.983 6.551 6.1665.820 5.510 5.2294.975 4.743 4.531 4.337 4.159 3.994 17.292 15.372 13.765 12.409 | 11.258 10.274 | 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.7464.534 4.339 4.160 3.995 19.793 17.159 15.046 13.332 11.925 10.757 9.779 | 8.951 8.244 7.634 7.105 6.6426.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 4.675 6.792 5.432 Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Req 4 Reg 5 Req 6A Req 6B Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product B Product A years Payback period years 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 net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg 3 Reg 4 Reg 5 Req 6A Reg 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. Req 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 Req3 Req 4 Reg 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