Problem 11-19A Comprehensive Problem [LO11-1, LO11-2, LO11-3, LO11-4]

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 21% 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)	$	270,000		$	480,000
Annual revenues and costs:
Sales revenues	$	320,000		$	420,000
Variable expenses	$	148,000		$	198,000
Depreciation expense	$	54,000		$	96,000
Fixed out-of-pocket operating costs	$	77,000		$	57,000

The companys discount rate is 19%.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

3.

Calculate the project profitability index for each product. (Use the appropriate table to determine the discount factor(s). Round your answers to 2 decimal places.)

	Product A	Product B
Project profitability index