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 20% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Products Initial investments Cost of equipment (zero salvage value) $ 220,000 $410,000 Annual revenues and costs Sales revenues $ 280,000 $ 380,000 Variable expenses $ 130,000 $ 182,000 Depreciation expense $ 44,000 $ 82,000 Fixed out-of-pocket operating costs $ 73,000 $ 60,000 The company's discount rate is 14%. Click here to view Exhibit 7B-1 and Exhibit 7B-2. to determine the appropriate discount factor using tables, 3. Calculate the internal rate of return for each product. Calculate the internal rate of return for each product. (Round your answers to 1 decimal place ... 0.123 should be considered as 12.396.) Product Product B Internal rate of retum 4. Calculate the project profitability index for each product. Calculate the project profitabilty index for each product. (Round your answers to 2 decimal places.) Product A Product B Project profitability index 5. Calculate the simple rate of return for each product. 1 Calculate the simple rate of return for each product. (Round your answers to 1 decimal place i.e. 0.123 should be considered as 12.396.) Product A Product B Simple rate of retum 6. For each measure, identify whether Product A or Product B is preferred. For each measure, identify whether Product A or Product B is preferred. Not Present Profitability Payback Internal Rate Simple Rate of Value Index Period of Return Return EOBIT 70-1 Present Value of the 1 2 4 5 5% 6% 30TT 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 254 0962 0.952 0903 0935 0926 0917 0.909 0901 0893 0885 08770870 0862 0855 08470840 0833 0826 0820 081 0806 0800 0925 0907 0890 0.873 0857 0842 0826 0812 0797 0783 0.769 0.756 0743 0731 0718 0706 0694 0683 0672 0661 0650 0640 0.889 0164 08400816 0794 0772 0751 0731 07120693 0675 0658 0641 0624 0609 0593 0579 0564 0551 0537 0524 0512 0856 0230792 0763 0735 0708 0683 0659 0636 06130592 0572 0552 0534 0516 0499 0482 04670451 0437 04230-410 0822 0754 0.17 0.713 0681 0650 0621 0593 0567 058 059 0497 0476 0456 0437 0.419 0.402 0.386 0.3700355 0341 0.328 0290 07460205 0566 0530 0596 0564 0535 0507 0480 0456 0432 0410.0390 0370 0352 0335 0.319 .0.303 0289 0275 0.262 0760071 066 0623 058 057 058 04820452 0425 0400 0376 0.3543333 0314 0296 0.279 0263 0249 0235 0222 0.210 0731 06770627 0.582 0540 0502 0.467 04340404 0376 0351 0.327 03050285 0266 0249 0233 0.218 0204 0191 01790168 0 2 EXHIBIT 79-Present Value of an Annuity of St in Arreurs: Priods th 2 3 5 7 85 93 10% 123 % % 15% 17% 18% 19% 20% 27% 22% 23 20% 25% 092 0952090 09350926 0917 0909 0901 0893 085 08770870 0862 0855 08470840 0833 0826 0820 0813 0806 0.800 186 1859 1830 1808 1763 1759 1736 1713 1690 1668 1667 1626 1605 1585 1566 1547 1528 1509 1492 1474 14571440 275 272 273 2524 2577 2531 2487 2444 2402 2361 2.322 2283 2246 2210 2174 2.140 2106 2074 2012 2011 1981 1952 3590 154618533813312 324031703102 3037 2974 2914 2855 2.798 2743 2690 2639 2589 2540 2494 248 2404 2362 4452 432942124100 1993 3.890 391 3696 3605 3517 333 3352 3274 3199 3127 3058 2991 2926 2864 2803 2745 2689 52025076491747574623 4.486 4355 4231 41 3998 3889 3784 3685 3589 3498 3.410 3326 3245 3167 3092 3020 2.951 6 002 578555825395205 5033 4868 4712 4564 4423 4288 4160 4039 3922 3812 37063605 3.508 3416 3327 3242 3161 67334636210 5971 57475535 535 5.64968 4.799 4639 4487 4344 4207 4078 3.954 3.837 3.726 3619 3518 3421 3329 YA 7 E CO TO 690 ARE EN AA 40 41 2270 2673 ESA 5 7 8
