Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products fo

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Lou Barlow A Divisional Manager For Sage Company Has An Opportunity To Manufacture And Sell One Of Two New Products Fo 1 (155.48 KiB) Viewed 13 times

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 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 15%. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the profitability index for each product. 4. Calculate the simple rate of return for each product. Product A $ 290,000 $ 340,000 $ 154,000 $ 58,000 $ 79,000 Product B $ 490,000 $ 440,000 $ 206,000 $ 98,000 $ 59,000 5a. For each measure, identify whether Product A or Product B is preferred. 5b. Based on the simple rate of return, which of the two products should Lou's division accept?

Req 1 Req 2 Net present value Req 3 Product A Req 4 Calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product B Req 5A < Req 1 Req 5B Req 3 >

Req 1 Req 2 Profitability index Req 3 Req 4 Product A Calculate the profitability index for each product. (Round your answers to 2 decimal places.) Product B Req 5A < Req 2 Req 5B Req 4 >

Req 1 Req 2 Simple rate of return Product A Req 3 % Calculate the simple rate of return for each product. (Round your percentage answers to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Product B % Req 4 ✓ Req 5A Rea 3 Req 5B Reg 5A >

Req 1 Req 2 Req 3 Req 4 Req 5A For each measure, identify whether Product A or Product B is preferred. Net Present Profitability Payback Simple Rate of Value Index Period Return < Req 4 Req 5B Req 5B >

Req 1 Req 2 Req 3 Req 4 Req 5A Req 5B Based on the simple rate of return, which of the two products should Lou's division accept? Accept Product A Accept Product B Reject both products