Question
ou 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
ou 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 20% each of the last three years. He has computed the cost and revenue estimates for each product as follows:
Product AProduct BInitial investment:Cost of equipment (zero salvage value)$260,000$470,000Annual revenues and costs:Sales revenues$310,000$410,000Variable expenses$144,000$194,000Depreciation expense$52,000$94,000Fixed out-of-pocket operating costs$76,000$56,000
The company's discount rate is 18%
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.)
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