Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products fo
Posted: Sun Jul 03, 2022 4:14 pm
Lou Barlow, a divisional manager for Sage Company, has anopportunity to manufacture and sell one of two new products for afive-year period. His annual pay raises are determined by hisdivision’s return on investment (ROI), which has exceeded 20% eachof the last three years. He has computed the cost and revenueestimates for each product as follows:
The company’s discount rate is 14%.
Click here to view Exhibit 12B-1 and Exhibit12B-2, to determine the appropriate discount factor usingtables.
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 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 ispreferred.
6b. Based on the simple rate of return, which of the twoproducts should Lou’s division accept?
The company’s discount rate is 14%.
Click here to view Exhibit 12B-1 and Exhibit12B-2, to determine the appropriate discount factor usingtables.
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 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 ispreferred.
6b. Based on the simple rate of return, which of the twoproducts should Lou’s division accept?