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: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs Product A Product B $ 210,000 $ 290,000 $ 138,000 42,000 $ $ 74,000 $ $ 420,000 $ 390,000 $ 186,000 $ 84,000 54,000
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 21% 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 Product A Product B $ 210,000 $ 290,000 $ 138,000 42,000 $ $ 74,000 $ $ 420,000 $ 390,000 $ 186,000 $ 84,000 54,000
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
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 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:
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 19%.
Product A
$ 210,000
$ 290,000
$
$
$
Product B
$ 420,000
$ 390,000
$ 186,000
138,000
42,000
74,000 $ 54,000
$ 84,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9fadbb1b-35da-411d-a96f-f1ca2485a97d%2F32dbc858-2bda-4731-8690-541f22024d2d%2Fwxy4u7_processed.png&w=3840&q=75)
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 21% 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 19%.
Product A
$ 210,000
$ 290,000
$
$
$
Product B
$ 420,000
$ 390,000
$ 186,000
138,000
42,000
74,000 $ 54,000
$ 84,000
![Req 1
Req 2
Payback period
Req 3
Product A
Calculate the payback period for each product. (Round your answers to 2 decimal places.)
Req 4
years
Product B
Req 6A
2.80 years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9fadbb1b-35da-411d-a96f-f1ca2485a97d%2F32dbc858-2bda-4731-8690-541f22024d2d%2Fen7qq6y_processed.png&w=3840&q=75)
Transcribed Image Text:Req 1
Req 2
Payback period
Req 3
Product A
Calculate the payback period for each product. (Round your answers to 2 decimal places.)
Req 4
years
Product B
Req 6A
2.80 years
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