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 divisions return on investment (ROI), which has exceeded 21% each of the last three years. He has computed the cost and revenue estimates for each product as follows:

	Product A			Product B
Initial investment:
Cost of equipment (zero salvage value)	$	270,000		$	480,000
Annual revenues and costs:
Sales revenues	$	320,000		$	420,000
Variable expenses	$	148,000		$	198,000
Depreciation expense	$	54,000		$	96,000
Fixed out-of-pocket operating costs	$	77,000		$	57,000

The companys discount rate is 19%.

Click here to view Exhibit 13B-1 and Exhibit 13B-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 project 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, Lou Barlow would likely:

Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 6B Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product EB Payback period 2.84 years 2.91 years Req1 Req 2> Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 6B Calculate the net present value for each product. (Round your final answers to the nearest whole dollar am Product A Product B Net present value 20,4724,510 Req1 Req 3 Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 6B Calculate the internal rate of return for each product. (Round your answers to 1 decimal place i.e. 0.123 as 12.3%.) Product A Product B Internal rate of return 22.41 % 21.31% Req 2 Req 4 > Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 6B Calculate the project profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Project profitability index 1.08 1.05 KReq 3 Req 5 > Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 6B Calculate the simple rate of return for each product. (Round your answers to 1 decimal place i.e. 0.12 as 12.3%.) Product A Product EB Simple rate of return 20.01 % 17.11% Req 4 Req 6A > Complete this question by entering your answers in the tabs below. Req 3 For each measure, identify whether Product A or Product B is preferred. Net Present Profitability Payback Internal Rate Simple Rate of Req 1 Req 2 Req 4 Req 5 Req 6A Req 6B Value Index Period of Return Return Req 5 Req 6B> Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 6B Based on the simple rate of return, Lou Barlow would likely: Accept Product A OAccept Product B OReject both products Req 6A Req 6B