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PROBLEM 8-23 Comprehensive Problem [LO 8-1, LO 8-2, L?8-3, LO 8-5, L?861 Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and one of two new products for a five-year period. His annual pay raises are determined by his d sions return on investment (ROI), which has exceeded 18% each of the last three years. H computed the cost and revenue estimates for each product as follows Product A Product B Initial investment Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses. Depreciation expense . Fixed out-of-pocket operating costs .. .. $170,000 $380.000 $250,000 $120,000 $34,000 $70,000 $350,000 $170,000 $76,000 $50,000 The company's discount rate is 16%. Required: I. Calculate the payback period for each product. 2. Calculate the net present value for each product. . Calculate the internal rate of return for each product. 4. Calculate the project profitability index for each product. . Calculate the simple rate of return for each product. 5. Which of the two products should Lou's division pursue? Why? PROBLEM 8-24 Simple Rate of Returo Payback: intenal Rate of Retum ILO 8-1, LO 8-3, LO 8