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 25% 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: :02:40 Cost of equipment (zero salvage value) Annual revenues and costs: $ 340,000 $ 540,000 $ 390,000 Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 490,000 $ 176,000 $ 226,000 $ 68,000 $ 108,000 $ 84,000 $ 64,000 The company's discount rate is 18%. Required (Use Excel for 2-4): 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. 6a. For each measure, identify whether Product A or Product B is preferred. > Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 6A Using Excel, calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value $ 31,256 $ 45,327 < Req 1 Req 3 >
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 25% 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: :02:40 Cost of equipment (zero salvage value) Annual revenues and costs: $ 340,000 $ 540,000 $ 390,000 Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 490,000 $ 176,000 $ 226,000 $ 68,000 $ 108,000 $ 84,000 $ 64,000 The company's discount rate is 18%. Required (Use Excel for 2-4): 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. 6a. For each measure, identify whether Product A or Product B is preferred. > Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 6A Using Excel, calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.) Product A Product B Net present value $ 31,256 $ 45,327 < Req 1 Req 3 >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
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 25% 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:
:02:40
Cost of equipment (zero salvage value)
Annual revenues and costs:
$ 340,000
$ 540,000
$ 390,000
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
$ 490,000
$ 176,000 $ 226,000
$ 68,000 $ 108,000
$ 84,000 $ 64,000
The company's discount rate is 18%.
Required (Use Excel for 2-4):
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.
6a. For each measure, identify whether Product A or Product B is preferred.
> Answer is complete but not entirely correct.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3
Req 4
Req 6A
Using Excel, calculate the net present value for each product. (Round your final answers to the nearest whole dollar amount.)
Product A
Product B
Net present value
$ 31,256
$
45,327
< Req 1
Req 3
>
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