I need help with questions 4/5/6A 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 21% 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) $ 210,000 $ 420,000 Annual revenues and costs: Sales revenues $ 290,000 $ 390,000 Variable expenses $ 136,000 $ 186,000 Depreciation expense $ 42,000 $ 84,000 Fixed out-of-pocket operating costs $ 74,000 $ 54,000 The company’s discount rate is 19%. Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor using tables. Required: 1. Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period years years 2. Calculate the net present value for each product. (Round discount factor(s) to 3 decimal places.) Product A Product B Net present value 3. Calculate the internal rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and round discount factor(s) to 3 decimal places.) Product A Product B Internal rate of return % % 4. Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.) Product A Product B Project profitability index 5. Calculate the simple rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.) Product A Product B Simple rate of return % % 6a. For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period Internal Rate of Return
I need help with questions 4/5/6A
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 21% 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) | $ | 210,000 | $ | 420,000 | |
Annual revenues and costs: | |||||
Sales revenues | $ | 290,000 | $ | 390,000 | |
Variable expenses | $ | 136,000 | $ | 186,000 | |
$ | 42,000 | $ | 84,000 | ||
Fixed out-of-pocket operating costs | $ | 74,000 | $ | 54,000 | |
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The company’s discount rate is 19%.
Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor using tables.
Required:
1. Calculate the payback period for each product. (Round your answers to 2 decimal places.)
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2. Calculate the
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3. Calculate the
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4. Calculate the project profitability index for each product. (Round discount factor(s) to 3 decimal places. Round your answers to 2 decimal places.)
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5. Calculate the simple rate of return for each product. (Round percentage answers to 1 decimal place. i.e. 0.1234 should be considered as 12.3%.)
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6a. For each measure, identify whether Product A or Product B is preferred.
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