Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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 division's return on investment (ROI), which has exceeded 18% each of the last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 170,000 $ 380,000 Annual revenues and costs: Sales revenues $ 250,000 $ 350,000 Variable expenses $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability index. 5. Calculate each product's simple rate of return. 6a. For each measure, identify whether Product A or Product B is preferred. 6b. Based on the simple rate of return, which of the two products should Lou's division accept? 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 division's return on investment (ROI), which has exceeded 18% each of the last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 170,000 $ 380,000 Annual revenues and costs: Sales revenues $ 250,000 $ 350,000 Variable expenses $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability index. 5. Calculate each product's simple rate of return. 6a. For each measure, identify whether Product A or Product B is preferred. 6b. Based on the simple rate of return, which of the two products should Lou's division accept?
Expert Answer:
Answer rating: 100% (QA)
1 Calculate each products payback period Product A Payback period Initial investment Annual cash inf... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
Students also viewed these accounting questions
-
1. Compare Mechanical and hydraulic presses. 2. What is the role of pilot in a progressive die? 3. Calculate the bending allowance. All dimensions are in inch. .125 2.000 1.625 R .250 2.625 3.000 4....
-
Exercise 4.46. a. Use Equation (4.1) to determine the sample covariance. b. Use Equation (4.2) and your answer from part (a) to find the regression equation. Compare your result to that found in the...
-
Refer to the RMO CSMS Order Fulfillment subsystem shown in Figure. Draw a use case diagram that shows all actors and all use cases. Use a drawing tool such as Microsoft Visio if it is available.
-
a. Draw a graph to illustrate production, consumption, and trade in the South before the Civil War. b. Was the South consuming inside, on, or outside its PPF? Explain your answer. c. Draw a graph to...
-
For Exercises explain how each experiment can be simulated by using random numbers. Almost 16% of Texas residents are foreign-born. Explain how to select a sample of 40 based on this scenario.
-
Consider Figure 9.37 and describe in your own words the fundamental result depicted there graphically. Input spectrum |G(io) System function SFF(0) S || @ Sxx (0) @p @ Response spectrum 34 Wn Figure...
-
Refer to the information in PA8-1. Iguana, Inc., had $10,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale,...
-
Futura Company purchases the 75,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $12.00 per unit. Due to a reduction in output, the company now has...
-
Daenerys, LLC provides cleaning service for homes and businesses. All sales are billed to clients with a credit terms that stipulate payment must be received 30 days after the invoice is received....
-
Write a method find() that takes the first Node in a linked list and a string key as arguments and returns true if some node in the list has key as its item field, and false otherwise.
-
Show that the diameter in a 2-ring graph on \(V\) vertices is \(\sim V / 4\). Show that if you add one edge connecting two antipodal vertices, the diameter decreases to \(\sim V / 8\).
-
Suppose \(x\) is a linked-list Node. What is the effect of the following code fragment? \[x \cdot \text { next }=x \cdot \text { next } . \text { next; }\]
-
Compare and contrast structured design-based methodologies in general to RAD-based methodologies in general.
-
A folder is a list of files and folders. Write a program that takes the name of a folder as a command-line argument and prints all of the files contained in that folder, with the contents of each...
-
Discuss the impact of foreign direct investment on the GDP of emerging economies (Malaysia).
-
The comparative statements of financial position of Menachem NV at the beginning and end of the year 2019 appear below. Net income of ¬34,000 was reported, and dividends of ¬23,000 were paid...
-
Which of the following is most likely to be detected by an auditor's review of a client's sales cutoff? a. Unrecorded sales for the year. b. Lapping of year-end accounts receivable. c. Excessive...
-
If the number of days' sales in accounts receivable (365 days/receivables turnover) decreases significantly, which of the following assertions for accounts receivable most likely is violated? a....
-
Negative confirmation of accounts receivable is less effective than posi- tive confirmation of accounts receivable because a. A majority of recipients usually lack the willingness to respond...
Study smarter with the SolutionInn App