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year period. His annual pay raises are determined by his division's return on investment ( ROI ) , which has exceeded 2 1 % each

year period. His annual pay raises are determined by his division's 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) $ 269,150 $ 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 company's discount rate is 19%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables.
Required:
Calculate the payback period for each product.
Calculate the net present value for each product.
Calculate the internal rate of return for each product.
Calculate the profitability index for each product.
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 3
Calculate the payback period for each product. (Round your answers to 2 decimal places.)
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