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)	$	360,000		$	530,000
Annual revenues and costs:
Sales revenues	$	400,000		$	510,000
Variable expenses	$	180,000		$	250,000
Depreciation expense	$	72,000		$	106,000
Fixed out-of-pocket operating costs	$	85,000		$	65,000

The companys discount rate is 19%.

2.

	Product A	Product B
Net present value

	Product A	Product B
Project profitability index

	Product A		Product B
Simple rate of return		%		%

Net Present Value	Profitability Index	Payback Period