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 $23\%$ each of the last three years. He computed the following cost and revenue estimates for each product:

$\backslash$table$[[$Initial investment:,Product A$,,],[$Cost of equipment $($zero salvage value$),$$$310,000,$$$510,000,],[$Annual revenues and costs:,,,$],[$Sales revenues,$$360,000,$$$460,000,],[$Variable expenses,$$164,000,$$$214,000,],[$Depreciation expense,$$62,000,$$$102,000,],[$Fixed out$-$of$-$pocket operating costs,$$81,000,$$$65,000,]]$

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.

$6$a$.$ For each measure, identify whether Product $A$ or Product $B$ is preferred.

$6$ b$.$ Based on the simple rate of return, which of the two products should Lou's division accept?

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