Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one...

  

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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 21% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 19%. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. Product A 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. $ 210,000 $ 290,000 $ 138,000 $ 42,000 $ 74,000 Product B $ 420,000 $ 390,000 $ 186,000 $ 84,000 $ 54,000 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? 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 21% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 19%. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. Product A 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. $ 210,000 $ 290,000 $ 138,000 $ 42,000 $ 74,000 Product B $ 420,000 $ 390,000 $ 186,000 $ 84,000 $ 54,000 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?

Answer rating: 100% (QA)

1 Pay back period for Product A 210 000 290 000 138 000 1 87 years Pay back period for Product B 210 ... View the full answer