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 theast 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 revenuesVariable expensesDepreciation expenseFixed out-of-pocket operating costsThe company's discount rate is 17%.Required (Use Excel for 2-4):1. Calculate the payback period for each product.2. Calculate the net present value for each product.Product A$ 190,000$ 270,000$ 128,000$$Product B$ 400,000$ 370,000$ 178,00038,000 $ 80,00072,000 $ 52,0003. Calculate the internal rate of return for each product.4. Calculate the profitability index for each product.6a. For each measure, identify whether Product A or Product B is preferred.

Product AProduct BInitial investment$190,000$400,000Sales revenue$270,000$370,000Variable…

Answered: Lou Barlow, a divisional manager for…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Please provide answers for the following requirements; Pay Back Period, Net Present value, Profitabilty Index, Simple Rate of Returna and Ranking. I need to understand it for my individual study after the completion of this assginment. Please don't give image format
Juniper Design Limited of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $460,000 on sales of $1,400,000. The company's average operating assets for the year were $1,600,000 and its minimum required rate of return was 11%. Required: Compute the company's residual income for the year. Residual income
Casey Nelson Is a divisional manager for Pigeon Company. His annual pay ralses are largely determined by his division's return on Investment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $4,100,000 Investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating Income each year for five years as follows: Sales $ 4,000, 000 1,840, e0e Variable expenses Contribution margin 2,160,000 Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs $ 760, 000 820, 000 Depreciation Total fixed expenses 1,580, e00 Net operating income $ 580, 000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Requlred: 1. What is the project's net present value? 2. What is the project's Internal rate of return to the nearest whole percent? 3. What Is the…
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,650,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: $ 4,000,000 1,750,000 Sales Variable expenses Contribution margin Fixed expenses: 2,250,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation $745,000 745,000 Total fixed expenses 1,490,000 Net operating income $ 760,000
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 computed the following cost and revenue estimates for each product: 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 Depreciation expense $ 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability index. 5.…
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 18%. The project would provide net operating income each year for five years a follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income. EXHIBIT 7B-1 Present Value of $1; Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What is the project's net present value? 2. What is the project's internal rate of return to the nearest whole percent? 3. What is the project's simple rate of return? 4-a. Would…
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N5.
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,450,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 20%. The project would provide net operating income each year for five years as follows: $ 4,300,000 1,960,000 2,340,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 790,000 890,000 1,680,000 660,000 Net operating income

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