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 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product al Initial investment Cost of equipent (zero salvage value) 5 300,000 $ 500,000 Annual revenues and costs Sales revenues $ 350,000 $ 450,000 Variable expenses $ 160,000 $ 210,000 Depreciation expense $ 60,000 $ 100,000 Fixed out-of-pocket operating costs $ 80,000 $ 61,000 The company's discount rate is 16% Click here to view Exhibit 142-1 and Exhibit 148-2, 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 6. For each measure, Identity whether Product A or Product is preferred. 66. 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. Reg4 Reg 5 Reg 68 Heq 1 Reg 2 8993 Req Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Red Product Product Net present value 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 (RO), which has exceeded 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product Products Initial investment: Cost of equipnent (zero salvage value) $ 300,000 $500,000 Annual revenues and costs: Sales revenues $ 350,000 $ 450,000 Variable expenses $ 160,000 $ 210,000 Depreciation expense $ 60,000 $ 100,000 Fixed out-of-pocket operating costs $ 80,000 $ 61,000 The company's discount rate is 16%. Click here to view Exhibit 148-1 and Exhibit 148-2, 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? tes Complete this question by entering your answers in the tabs below. Rea 1 Reg 2 Req3 Reg 4 Reqs Reg 6 Reg 68 Calculate the internal rate of return for each product. (Round your percentage answers to 1 decimal place le 0.123 should be considered as 12.3%) Product A Products Internal rate of retum % Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req3 Req4 Reg 5 Reg 6 Reg 68 Calculate the profitability index for each product. (Round your answers to 2 decimal places.) Product A Product Profitability index B Complete this question by entering your answers in the tabs below. Rea 1 Reg 2 Req Heg 4 Reqs Reg 6 Reg 68 Calculate the simple rate of return for each product. (Round your percentage answers to 1 decimal place le 0.123 should be considered as 12.3%) Product A Products Simple rate of return Complete this question by entering your answers in the tabs below. Req1 Reg 2 Req3 Reg 4 Reqs Req 6A Reg 68 For each measure, identify whether Product A or Product is preferred. Nat Present Profitability Payback Internal Rate Simple Rate of Value Index Period of Return Return
