Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufac

Question

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 22% 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) $370,000 $570,000

Annual revenues and costs: Sales revenues $400,000 $ 480,000

Variable expenses $ 182,000 $ 214,000

Depreciation expense $ 74,000 $ 114,000

Fixed out-of-pocket operating costs $ 88,000 $ 68,000

Discount rate is 20%

Calculate the payback period for each product. (Round your answers to 2 decimal places.)

Calculate the net present value for each product. (Use the appropriate table to determine the discount factor(s).)

Calculate the project profitability index for each product. (Use the appropriate table to determine the discount factor(s). Round your answers to 2 decimal places.)

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% and use the appropriate table to determine the discount factor(s).)

Calculate the payback period for each product. (Round your answers to 2 decimal places.)

Calculate the net present value for each product. (Use the appropriate table to determine the discount factor(s).)

Calculate the project profitability index for each product. (Use the appropriate table to determine the discount factor(s). Round your answers to 2 decimal places.)

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% and use the appropriate table to determine the discount factor(s).)

Explanation / Answer

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