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 20% 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)	$	260,000		$	470,000
Annual revenues and costs:
Sales revenues	$	310,000		$	410,000
Variable expenses	$	144,000		$	194,000
Depreciation expense	$	40,000		$	82,000
Fixed out-of-pocket operating costs	$	76,000		$	58,000

The companys discount rate is 18%.

3. Calculate the internal rate of return for each product. (Round percentage answer to 1 decimal place. ie. 0.1234 should be considered as 12.3% and Round discount factor(s) to 3 decimal places.) Product A Product B Internal rate of return 28.6% 20.3% 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 1.08 1.05 Project profitability index