Problem $12-23($Algo$)$ Comprehenslve Problem $[$LO$12-1,$ LO$12-2,$ LO$12-3,$ LO$12-5,$ LO$12-6]$

Lou Barlow, a divisional manager for Sage Company, has an opportunlty to manufacture and sell one of two new products for a five$-$

year perlod. His annual pay ralses 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:

The company's discount rate is $16\%$

Click here to vew Exhiblt $12B-1$ and Exhiblt $12$B$-2,$ to determine the appropriate discount factor using tables.

Required:

$1.$ Calculate the payback perlod 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?