Problem 13-23 Comprehensive Problem [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]

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 23% 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 $390,000 $585,000 Annual revenues and costs Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $420,000 $500,000 $190,000 $222,000 $ 54,000 96,000 $90,000 70,000 The company's discount rate is 21%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tables