ed ok t Problem 1223 (Algo) Comprehensive Problem [LO121, LO122, LO123, LO125, LO126] Lou Barlow, a...
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ed ok t Problem 1223 (Algo) Comprehensive Problem [LO121, LO122, LO123, LO125, LO126] 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 19% 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 outofpocket operating costs The company's discount rate is 16%. nces Product A Product B $ 173,660 $ 390,000 $ 270,000 $ 360,000 $ 130,000 $ 180,000 $ 44,000 $ 86,000 $ 80,000 $ 60,000 Click here to view Exhibit 12B1 and Exhibit 12B2, 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 Req 3 Req 4 Req 5 Req 6A Req 6B < Prev 13 of 13 Next ed ok t Problem 1223 (Algo) Comprehensive Problem [LO121, LO122, LO123, LO125, LO126] 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 19% 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 outofpocket operating costs The company's discount rate is 16%. nces Product A Product B $ 173,660 $ 390,000 $ 270,000 $ 360,000 $ 130,000 $ 180,000 $ 44,000 $ 86,000 $ 80,000 $ 60,000 Click here to view Exhibit 12B1 and Exhibit 12B2, 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 Req 3 Req 4 Req 5 Req 6A Req 6B < Prev 13 of 13 Next
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