PLEASE HELP CALCULATE THE FOLLOWING--- Required: 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?
PLEASE HELP CALCULATE THE FOLLOWING--- Required: 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?
Chapter15: Managing Short-term Assets
Section: Chapter Questions
Problem 13PROB
Related questions
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
| Product A | Product B | |
|---|---|---|
| Initial investment: | ||
| Cost of equipment (zero salvage value) | $ 190,000 | $ 400,000 |
| Annual revenues and costs: | ||
| Sales revenues | $ 270,000 | $ 370,000 |
| Variable expenses | $ 128,000 | $ 178,000 |
| $ 38,000 | $ 80,000 | |
| Fixed out-of-pocket operating costs | $ 72,000 | $ 52,000 |
The company’s discount rate is 17%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
PLEASE HELP CALCULATE THE FOLLOWING--- Required:
4. Calculate the profitability index for each product.
5. Calculate the simple
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?
![Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, L07-3, L07-5, LO7-6]
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:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 17%.
Click here to view Exhibit 7B-1 and Exhibit 7B-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.
Req 1
Product A
Req 2
Req 3
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?
Req 4
$ 190,000
$ 270,000
$ 128,000
Complete this question by entering your answers in the tabs below.
$ 38,000
$ 72,000
< Req 5
Product B
Req 5
$ 400,000
$ 370,000
$ 178,000
$ 80,000
$ 52,000
For each measure, identify whether Product A or Product B is preferred.
Net Present Profitability Payback Internal Rate Simple Rate of
Index
of Return
Value
Period
Return
Req 6A
Req GB >
Req 6B](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F032b8689-1487-47d0-960a-ec81d5d77a8e%2F7aa52865-9291-49d4-8abd-6d5da0fc5654%2F0mq4tr_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, L07-3, L07-5, LO7-6]
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:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 17%.
Click here to view Exhibit 7B-1 and Exhibit 7B-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.
Req 1
Product A
Req 2
Req 3
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?
Req 4
$ 190,000
$ 270,000
$ 128,000
Complete this question by entering your answers in the tabs below.
$ 38,000
$ 72,000
< Req 5
Product B
Req 5
$ 400,000
$ 370,000
$ 178,000
$ 80,000
$ 52,000
For each measure, identify whether Product A or Product B is preferred.
Net Present Profitability Payback Internal Rate Simple Rate of
Index
of Return
Value
Period
Return
Req 6A
Req GB >
Req 6B
![Problem 7-23 (Algo) Comprehensive Problem [LO7-1, L07-2, L07-3, LO7-5, LO7-6]
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:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 17%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
Product A
Decision
$ 190,000
$ 270,000
$ 128,000
$ 38,000
$ 72,000
Req 3
Product B
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?
< Req 6A
Complete this question by entering your answers in the tabs below.
$ 400,000
$ 370,000
$ 178,000
Req 4
Req 1
Req 2
Based on the simple rate of return, which of the two products should Lou's division accept?
$ 80,000
$ 52,000
Req 5
Reg 6A
Req 6B
Reg 6B](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F032b8689-1487-47d0-960a-ec81d5d77a8e%2F7aa52865-9291-49d4-8abd-6d5da0fc5654%2F5eaexmg_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 7-23 (Algo) Comprehensive Problem [LO7-1, L07-2, L07-3, LO7-5, LO7-6]
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:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 17%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
Product A
Decision
$ 190,000
$ 270,000
$ 128,000
$ 38,000
$ 72,000
Req 3
Product B
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?
< Req 6A
Complete this question by entering your answers in the tabs below.
$ 400,000
$ 370,000
$ 178,000
Req 4
Req 1
Req 2
Based on the simple rate of return, which of the two products should Lou's division accept?
$ 80,000
$ 52,000
Req 5
Reg 6A
Req 6B
Reg 6B
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