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)	$	340,000		$	540,000
Annual revenues and costs:
Sales revenues	$	390,000		$	490,000
Variable expenses	$	176,000		$	226,000
Depreciation expense	$	68,000		$	108,000
Fixed out-of-pocket operating costs	$	84,000		$	64,000

The companys discount rate is 18%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tables.

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 2 Req 3 Req 4 Req 5 Req 6A Req 6B Req 1 Calculate the simple rate of return for each product. (Round your answers to 1 decimal place i.e. 0.123 as 12.3%.) Product A Product B Simple rate of return KReq 4 Req 6A Complete this question by entering your answers in the tabs belovw Req 3 Req 4 Req 5 Req 6A Req 68 Req 1 Req 2 For each measure, identify whether Product A or Product B is preferred nternal Rate of Return Simple Rate o Return Net Present Profitability Payback Value Index Period K Req 5 Req 6B > Complete this question by entering your answers in the tabs below Req 4 Req 5 Req 6A Req 6B Req 2 Req 3 Req 1 Based on the simple rate of return, Lou Barlow would likely: OAccept Product A Accept Product B OReject both products