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 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
Required:
Calculate the payback period for each product.
Calculate the net present value for each product.
Calculate the profitability index for each product.
Calculate the simple rate of return for each product.
a For each measure, identify whether Product A or Product B is preferred.
b Based on the simple rate of return, which of the two products should Lou's division accept?
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