Problem 14-23 (Algo) Comprehensive Problem [LO14-1, LO14-2, LO14-3, LO14-5, LO14-6]

EXHIBIT 14B-1 1 Present Value of $1; 1 (1+r) n 0.800 0.410 | 0.145 Periods 4% 5% 6% 7% % 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 0.962 0.952 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.893 0.885 0.877 0.870 0.862 0.8.55 0.847 0.840 0.833 0.826 0.820 0.813 0.806 2 0.925 0.907 0.890 0.873 0.857 0.842 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.756 0.743 0.731 0.718 0.7180.706 0.706 0.694 0,683 0.672 0.661 0.650 0.650 0.640 3 0.889 0.864 0.864 | 0.840 0.840 0.816 0.794 0.772 0.772 0.751 0.731 0.731 0.712 0.693 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.551 0.537 0.524 0.512 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.516 0.499 0499 0.482 0.467 0.451 0.437 0.437 0.423 5 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.437 0.419 0.419 0.402 0.386 0.370 0.355 0.341 0.328 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.5350_507 0.480 0.456 0.432 0.410 0.390 0.370 0.3520335 0.319 0.303 0.303 0.289 0.275 0.262 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.452 0.425 0.400 0.376 0.354 0.333 0.333 0.314 0.296 0.279 0.263 0.263 0.2490.235 0.222 0.210 8 0.731 0,677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.376 0.351 0.327 0.305 | 0.285 0.266 0.2490.233 0.218 0.204 0.191 0.179 0.179 0.168 9 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134 10 0.676 0.614 | 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.107 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.086 12 0.625 0.557 0.497 0.444 0.397 0.356 0319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.1020.092 0.083 0.076 0.069 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044 15 0.555 0.481 0417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 | 0.065 0.057 0.051 0.045 0.040 0.035 16 0.534 0.458 0.394 1 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036 0.032 0.028 17 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023 18 0.494 0.416 0.350 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.0SI 0.044 0.038 0.032 0.028 0.024 0.021 0.018 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0.020 0.017 0.014 20 0.456 0.377 0.312 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.0160.014 0.012 21 0.439 0.359 0.294 0.294 0.242 0.1990.164 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.026 0.022 0.018 0.015 0.013 0.011 0.009 22 0.422 0.342 0.278 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.015 0.013 0.0110.009 23 0.406 0.326 0.262 0.262 0.211 0.170 0.138 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.0120.010 0.009 0.007 0.0X16 24 0.390) 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.019 0.015 0.0151 0.013 0.010 0.008 0.007 0.006 0.005 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.0200.016 0.0160.013 0.013 0.010 0.009 0.007 0.006 0.005 OX4 26 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0,066 0.053 0.042 0.033 0.026 0,021 0.017 | 0.014 0.011 1 0.0009 0.0090.007 0.006 0,005 0,004 0.003 27 0.347 0.268 0.207 0.161 0.125 0.098 0.125 0.098 0.076 0.060 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.005 0.0040.003 0.002 28 0.333 0.255 0.1960.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0,016 0.0200.016 0.012 0.010 0.008 0.006 0.005 0.004 0.003 0.002 0.002 29 0.321 0.243 0.185 0.14] 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.X2 30 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.0120.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.0 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.022 0.015 0.0110.008 0.005 0.0040.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 O.XXO 0.022 0.018 0.007 EXHIBIT 14B-2 Present Value of an Annuity of $1 in Arrears; 11[1-1(1+r)n) Periods 5% % 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% % 20% 21% 22% 23% 24% 25% 1 0.962 0.952 0.943 0.935 0.926 0.917 | 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.8SS 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800 2 1.886 1.859 1.8331.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.509 1.492 1.474 1.457 1.440 3 2.775 2.723 2.673 2.624 2.577 2.531 2.531 | 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2,074 2.042 2,011 1.981 1.952 4 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 | 2.362 5 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 6 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 7 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.564 4.423 4.288 4.160 4.039 3.922 3.812 | 3.706 3.605 3.508 3.416 3.327 3.2423.161 8 6.733 6,463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 *..149 4.344 4.207 4.078 3.954 3.837 3.726 3.720 3.619 3.518 3.421 3.329 9 7.435 7.108 6.802 6.515 6.247 229 5.995 5.759 5.537 5.328 5.1.32 4.946 | 4.7724.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 10 8.1117.722 7.360 7.0246.710 6.418 6.145 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 | 3.799 3.799 3.682 3.571 11 8.760 8.306 7.887 7.499 7.139 6.805 6.4956.207 5.938 5.687 5.4535.234 5.029 4.836 4.656 4.486 4.327 4.177 4035 3.902 3.776 3.656 12 9.385 8.863 8.384 7.943 7.5367.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 13 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.1225.8425.583 5.342 S.118 4.9104.715 4.533 4.362 4.203 4.053 3.912 3.780 14 10.563 9.899 9.899 9.295 8.745 8.244 7.786 7.3676.982 6.628 6.302 6.0025.724 5.468 S.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 15 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.1534.001 3.859 16 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 | 5.668 5.405 5.1624.938 4.730 4.536 4.357 4.189 4.033 | 3.887 17 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4 391 4.219 4.059 3.910 18 12.659 11.690 10.828 10.0599.372 9.372 8.756 8.201 7.702 7.250 6.840) 6.467 | 6.128 5.818 5.534 5.273 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 19 13.134 12.085 | 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.SSO 6.1985.877 5.584 5.316 5.0704.843 4.635 4.442 4.263 4.097 3.942 20 13.590 12.462 11.470 10.5949.818 9.129 8.514 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.3535.101 4.870 4.657 4.460 4.279 4.110 3.954 21 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 6.687 6.3125.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 22 14.451 13.163 12.042 11.061 10.2019.442 8.7728.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 | 3.970 23 14.857 13.489 12.303 11.272 10.371 9.580 8.8838.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137 3.976 24 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.713 4.507 4.318 4.143 3.981 25 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985 26 15.983 14.375 13.003 11.826 10.8109.929 | 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 | 4.956 4.728 4.520 4.328 4.151 27 16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.332 4.154 3.990 28 16.663 14.898 13.406 12.137 11.051 10.116 | 9.307 8.602 7.984 7.441 6.961 | 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.739 4.528 4.335 4.157 | 3.992 29 16.984 15.141 13.591 12.278 11.158 10.1989.370 8.650 8.022 7.470 6.98365516,166 5.820 5.510 5.229 5.229 4.975 4.975 4.743 4.531 4.337 4.159 3.994 30) 17.292 15.372 13.765 12.409 11.258 10.2749.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.517 5.235 4.979 4.746 4.534 4.339 4.160 3.995 40 19.793 17.159 15.046 13.332 11.925 10.7579.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 4.937 3.988 Problem 14-23 (Algo) Comprehensive Problem (LO14-1, LO14-2, LO14-3, LO14-5, LO14-6) 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 $ 290,000 $ 490,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 340,000 $ 154,000 $ 58,000 $ 79,000 $ 440,000 $ 206,000 $ 98,000 $ 59,000 The company's discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor using tables. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the internal rate of return for each product. 4. Calculate the profitability index for each product. 5. Calculate the simple rate of return for each product. 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req3 Req 4 Req 5 Req 6A Req 6B Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A years Product B years Payback period Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Req 5 Req 6A Req 6B Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Req 6A Req 6B Calculate the internal rate of return for each product. (Round your percentage answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product A Product B Internal rate of return % % Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Req 4 Req 5 Req 6A Req 6B Calculate the profitability index for each product. (Round your answers to 2 decimal places.) Product A Product B Profitability index Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Req 4 Reg 5 Reg 6A Req 6B Calculate the simple rate of return for each product. (Round your percentage answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product A Product B Simple rate of return % % Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Req 5 Req 6A Req 6B For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period Internal Rate Simple Rate of of Return Return Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Req 6B Based on the simple rate of return, which of the two products should Lou's division accept? Accept Product A Accept Product B Reject both products