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 $25\%$ 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

$$340,000$$$540,000$

$$390,000,$$$490,000$

$$176,000,$$$226,000$

$$68,000,$$$108,000$

$$84,000,$$$64,000$

The company's discount rate is $18\%.$

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.

$6a.$ 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.

$\backslash$table$[[,,$Required $5,$Required $6$A$]]$

For each measure, identify whether Product A or Product B is preferred.

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