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 23% 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)	$	300,000		$	500,000
Annual revenues and costs:
Sales revenues	$	350,000		$	450,000
Variable expenses	$	160,000		$	210,000
Depreciation expense	$	60,000		$	100,000
Fixed out-of-pocket operating costs	$	80,000		$	61,000

The companys discount rate is 16%.

Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.

Required:

4. Calculate the project profitability index for each product.