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Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a f year period.

Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a f
year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 23% each of
last three years. He has computed the cost and revenue estimates for each product as follows:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 21%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables.
Required:
Calculate the payback period for each product.
Calculate the net present value for each product.
Calculate the internal rate of return for each product.
Calculate the profitability index for each product.
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?
Complete this question by entering your answers in the tabs below.
Calculate the internal rate of return for each product. (Round your percentage answers to 1 decimal place i.e.0.123 should be
considered as 12.3%.)
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