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 for a
five-year period. His annual pay raises are determined by his
division’s return on investment (ROI), which has exceeded 19% 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 16%.
Click here to view Exhibit 12B-1 and Exhibit
12B-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 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, which of the two
products should Lou’s division accept?
Complete this question by entering your answers in the
tabs below.
Calculate the payback period for each product. (Round your
answers to 2 decimal places.)
Calculate the net present value for each product. (Round
your final answers to the nearest whole dollar amount.)
Calculate the internal rate of return for each
product. (Round your percentage answers to 1 decimal place
i.e. 0.123 should be considered as 12.3%.)
Calculate the profitability index for each product. (Round
your answers to 2 decimal places.)
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%.)
For each measure, identify whether Product A or Product B is
preferred.