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 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows:

Please answer all questions and show your work, math and explanations. Thank you very much.

	Product A			Product B
Initial investment:
Cost of equipment (zero salvage value)	$	350,000		$	550,000
Annual revenues and costs:
Sales revenues	$	390,000		$	470,000
Variable expenses	$	178,000		$	210,000
Depreciation expense	$	70,000		$	110,000
Fixed out-of-pocket operating costs	$	87,000		$	67,000

The companys discount rate is 20%.

Required:

1. Calculate the payback period for each product. (Round your answers to 2 decimal places.)

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

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

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

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

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:

	Accept Product A
	Accept Product B
	Reject both products

Product A Product B Payback period years years Product A Product B Net present value 3. Calculate the internal rate of return for each product. (Round percentage places.) Product A Product B Internal rate of return % % 4. Calculate the project profitability index for each product. (Round discount factor's Product A Product B Project profitability index 5. Calculate the simple rate of return for each product. (Round percentage an Pr luct A Product B Simple rate of return % % 6a. For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period Internal Rate of Return Product A Product B Payback period years years Product A Product B Net present value 3. Calculate the internal rate of return for each product. (Round percentage places.) Product A Product B Internal rate of return % % 4. Calculate the project profitability index for each product. (Round discount factor's Product A Product B Project profitability index 5. Calculate the simple rate of return for each product. (Round percentage an Pr luct A Product B Simple rate of return % % 6a. For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period Internal Rate of Return