Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell...
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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 21% each of the last three years. He has computed the cost and revenue estimates for each product as follows Product AProduct B Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expens De $270,000 480,000 320,000 420,000 $ 148,000 198,000 $ 54,000 96,000 $ 77,000 57,000 es preciation expense Fixed out-of-pocket operating costs The company's discount rate is 19%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, 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 project 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, Lou Barlow would likely
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