I’m just can’t figure out 4 and 5 Lou Barlow, a divisional manager for Sage Comp

Question

I’m just can’t figure out 4 and 5 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 is annual pay raises are determined by his division's return on investment (RO, which has exceeded 20% 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 220,080 410,800 s 288,e00 380,080 130,000 $ 182,880 44,000 $ 82,000 S 73,00 60,08 The company's discount rate is 14%. Click here to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount fector 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. Colculate 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

Explanation / Answer

4. The project profitability index for each product is computed as follows:

5. The simple rate of return for each product is computed as follows:

Calcualtion of Nat cash inflow:

Product A Product B Net present value (a) 44,264 63,616 Investment required (b) 220,000 410,000 Project profitability index (a) / (b) 0.20 0.16

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.