Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, 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 22% 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 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. Req 1 Req 2 Payback period The company's discount rate is 20%. Click here to view Exhibit 7B-1 and Exhibit 7B 2, to determine the appropriate discount factor using tables. Product A Product B $ 380,000 $575,000 Req 3 Product A $410,000 $-186,000 $75,000 $ 89,000 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_ Req 4 years Complete this question by entering your answers in the tabs below. Product B years TE UNEL $ 490,000 $ 218,000 Req 5 $ 115,000 70,000 $ Calculate the payback period for each product. (Round your answers to 2 decimal places.) Req 6A Req 6B Req 2 >
Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, 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 22% 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 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. Req 1 Req 2 Payback period The company's discount rate is 20%. Click here to view Exhibit 7B-1 and Exhibit 7B 2, to determine the appropriate discount factor using tables. Product A Product B $ 380,000 $575,000 Req 3 Product A $410,000 $-186,000 $75,000 $ 89,000 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_ Req 4 years Complete this question by entering your answers in the tabs below. Product B years TE UNEL $ 490,000 $ 218,000 Req 5 $ 115,000 70,000 $ Calculate the payback period for each product. (Round your answers to 2 decimal places.) Req 6A Req 6B Req 2 >
Chapter15: Managing Short-term Assets
Section: Chapter Questions
Problem 13PROB
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