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 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: Coat of equipment (zero salvage value) $ 210,000 $ 420,000 Annual revenues and costs: Sales revenues $ 290,000 $ 390,000 Variable expenses $ 138,000 $ 186,000 Depreciation expense $ 42,000 $ 84,000 Fixed out-of-pocket operating coats $ 74,000 $ 54,000 The company's discount rate is 19% Click here to view Exhibit 128-1 and Exhibit 12B-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. Reg 1 Reg 4 Reg 6B Reg 2 Reg 3 Reg 5 Req GA Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product B Product A years Payback period years Rog Reg 2 > Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Reg 6B Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Regs Req 6A Reg 6B Calculate the internal rate of return for each product. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) Product A Product B Internal rate of return % % Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Req 6B Calculate the project profitability index for each product. (Round your answers to 2 decimal places.) Product Product B Project profitability index Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Regs Reg 6A Reg 6B Calculate the simple rate of return for each product. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product A Product B Simple rate of retum Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Reg 6B For each measure, identify whether Product A or Product B is preferred. Net Present Profitability Value Index Payback Period Internal Rate of Return Simple Rate of Return Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Reg 6B Based on the simple rate of return, Lou Barlow would likely: Accept Product A Accept Product B Reject both products
