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 25% 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)	$	370,000		$	530,000
Annual revenues and costs:
Sales revenues	$	400,000		$	510,000
Variable expenses	$	180,000		$	250,000
Depreciation expense	$	49,000		$	91,000
Fixed out-of-pocket operating costs	$	85,000		$	72,000

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. (Round your answers to 2 decimal places.)

	Product A		Product B
Payback Period		Years		Years

2.	Calculate the net present value for each product. (Round discount factor(s) to 3 decimal places.)

	Product A	Product B
Net present Value

3.	Calculate the internal rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and Round discount factor(s) to 3 decimal places.)

	Product A		Product B
Factor of the internal rate of return		%		%

4.	Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.)

	Product A	Product B
Project profitability index

5.	Calculate the simple rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.)

	Product A		Product B
Simple rate of return		%		%

6a.

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

Net Presnt Value	Profitability Index	Payback Period	Internal Rate of return

6b.

Based on the simple rate of return, Lou Barlow would likely:

	Accept Product A
	Accept Product B
	Reject both products