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Lou Barlow, a divisional manager for Sage Company, has an ooportunity 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: S 380,000 $ 575,000 Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 410,000 $ 490,000 $ 186,000 $ 218,00e $ 76,000 $ 115,800 $ 89,800 s 70,80e The company's discount rate is 20%. Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Requlred: 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.

Lou Barlow, a divisional manager for Sage Company, has an ooportunity 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: S 380,000 $ 575,000 Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 410,000 $ 490,000 $ 186,000 $ 218,00e $ 76,000 $ 115,800 $ 89,800 s 70,80e The company's discount rate is 20%. Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Requlred: 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.

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter7: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 53P: Aldovar Company produces a variety of chemicals. One division makes reagents for laboratories. The...
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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 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) Annual revenues and costs: $ 380,000 $ 575, 00e Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 418,800 $ 186,800 76,000 $ 89,000 $ 498,00e $ 218,080 $ 115,000 $ 78,000 The company's discount rate is 20%. 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 project 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, Lou Barlow would likely: Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Reg 4 Reg 5 Req 6A Reg 68 Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period years уears < Reg 1 Req 2 >
Transcribed Image Text: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) Annual revenues and costs: $ 380,000 $ 575, 00e Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 418,800 $ 186,800 76,000 $ 89,000 $ 498,00e $ 218,080 $ 115,000 $ 78,000 The company's discount rate is 20%. 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 project 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, Lou Barlow would likely: Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Reg 4 Reg 5 Req 6A Reg 68 Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product A Product B Payback period years уears < Reg 1 Req 2 >
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