Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/66494ffaa45e9_63366494ff9d341f.jpg)
Transcribed Image Text:
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 18% each of the last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 170,000 $ 380,000 Annual revenues and costs: sales revenues $ 250,000 $ 350,000 Variable expenses $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability Index. 5. Calculate each product's simple rate of return. 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 is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6A Required 68 Calculate each product's profitability index. Note: Round your answers to 2 decimal places. Profitability index Product A 0.09 Product B 0.26 < Required 3 Required 5 > 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 18% each of the last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 170,000 $ 380,000 Annual revenues and costs: sales revenues $ 250,000 $ 350,000 Variable expenses $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability Index. 5. Calculate each product's simple rate of return. 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 is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6A Required 68 Calculate each product's profitability index. Note: Round your answers to 2 decimal places. Profitability index Product A 0.09 Product B 0.26 < Required 3 Required 5 >
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Name: 9. 11. Bell: Directions: Evaluate each expression using the order of operations. 1. 17-5-4+2 2. 40-32+8+5--2 Date: 5. 2018-(5+3)+7] 3.35-14+2+8 7.1+(-2-5)+(14-17)-4 25 +8+3 4+3 Unit 1: Algebra...
-
The important dates in connection with a cash dividend of $112,750 on a corporations common stock are October 6, November 5, and December 5. Journalize the entries required on each date.
-
Analyze each case and choose a letter code under each category (type and approach) to indicate the preferable accounting for each case. a. Changed depreciation method from declining-balance to...
-
How do uniforms serve as symbols?
-
Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget on the basis of standard costs. The following data are for March: Required a....
-
Identify the open intervals where he function is changing as requested. Decreasing 4 mm Q Q \\ / m' X -( )- _ . _ s
-
12 1 2 The system temperature starts at 325F and decreases thru number 4 to 142F after the air makes its way to number 3 the air increases to 260F to number 6 as the air passes thru the air decreases...
-
Employing RFID in the aviation industry to reduce loss of Customer Baggage: Case of sky Prime airlines Sky prime airline is a private airline company incorporated in Arabia and owned by business man...
-
How do create and build an Healthy Organization with an example? How would determine the current state of the organizations health? What evidence would support the value of having a healthy...
-
An organization made errors in estimating the supply of human capital that became amplified along the supply chain, resulting in large overestimates of hiring needs. What term defines what is...
-
You have a large organization in many different countries, how do they manage a cohesive corporate social responsibility?
-
Concentrated growth alone is not appropriate for an organization which is in serious trouble". What is the reasoning behind this statement? Concentrated growth is never appropriate for an...
-
What type of organization structure is the Trust? Is the structure conducive for implementing a portfolio of projects in multiple African countries? [30 marks] Explain how establishing a Project...
-
What is important about domestic and international mathematical technical and scientific terms used in Environmental Health Service (EHS) programs. Pick a few examples to demonstrateyour view. Show...
-
Which of the companies has the lowest accounts receivable turnover in the year 20X2? a. Company A. b. Company B. c. Company C. d. CompanyD. 20X1 20X2 Credit Sales Average Receivables Balance $1.0...
-
Who establishes a zone of indifference for employees?
-
What went wrong? One year ago, Teresa, a hospital CEO, approached her supervisor, Kent, the health systems regional vice president, with an idea to build a new hospital in an adjoining community. She...
-
In your opinion, why do abusive bosses often fail to recognize their role in the abuse?
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App