70.2K

Verified Solution

Link Copied!

Q: Need Help on questions on 2,3,4,5 Product A and B as follows: 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 divisions return on investment (ROI), which has exceeded 18% each of the last three years. He has computed the cost and revenue estimates for each product as follows: 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 companys discount rate is 16%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tables. Required: Calculate the payback period for each product. (Round your answers to 2 decimal places.) 1. Product A Product B Payback period 2.83 years 2.92 years 2. Product A Product B Net present value 3. Calculate the internal rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and Round discount factor(s) to 3 decimal places. Product A Product B Factor of the internal rate of return % % . Calculate the net present value for each product.(Round discount factor(s) to three decimal places.) Calculate the project profitability index for each product. (Round discount factor(s) to three decimal places. Round your answers to 2 decimal places.) Product A Product B Project profitability index Calculate the simple rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.) Product A Product B Simple rate of return % %

Answer & Explanation Solved by verified expert

See Answer