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 17% 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 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. $ 176,600 $ 260,000 $ 124,000 $ 36,000 $ 71,000 Product B $ 390,000 $360,000 $ 174,000 $ 78,000 $ 50,000 The company's discount rate is 15%. Click here to view Exhibit 128-1 and Exhibit 128-2. to determine the appropriate discount factor using tables.

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 17% 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 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. $ 176,600 $ 260,000 $ 124,000 $ 36,000 $ 71,000 Product B $ 390,000 $360,000 $ 174,000 $ 78,000 $ 50,000 The company's discount rate is 15%. Click here to view Exhibit 128-1 and Exhibit 128-2. to determine the appropriate discount factor using tables.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 ast 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%. 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 $ 178,000 38,000 $ 80,000 72,000 $ 52,000 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…
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: Product A 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 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor using tables. $ 180,000 $ 270,000 $ 130,000 Product B $ 44,000 $ 80,000 $ 390,000 $360,000 $ 180,000 $ 86,000 $ 60,000 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…
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 Req 1 Req 2 Complete this question by entering your answers in the tabs below. The company's discount rate is 16%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Req 3 Internal rate of return 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…
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 18% 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 16%. Product A Product B $ 170,000 $ 380,000 $ 250,000 $ 350,000 $ 120,000 $ 34,000 $ 70,000 $ 170,000 $ 76,000 $ 50,000 Click here to view Exhibit 12B-1 and Exhibit 12B-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…
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 20% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product B Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs Req 1 The company's discount rate is 14% Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Complete this question by entering your answers in the tabs below. Req 2 Product A 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…
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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 23% 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 Req 1 The company's discount rate is 15%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Complete this question by entering your answers in the tabs below. 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…
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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: Product A Product B Initial investment: Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Cost of equipment (zero salvage value) $ 370,000 $ 570,000 $ 400,000 $ 480,000 $ 180,000 $ 214,000 $ 74,000 $ 114,000 Fixed out-of-pocket operating costs $ 88,000 $ 68,000 The company's discount rate is 20%. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the profitability index for each product. 4. Calculate the simple rate of return for each product. 5a. For each measure, identify whether Product A or Product B is preferred. 5b. Based on…
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 20% 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: Cost of equipment (zero salvage value) Annual revenues and costs: $250,000 $. 460,000 $300,000 $400,000 Sales revenues 190,000 $ 140,000 $ 39,000 Variable expenses $ 81,000 Depreciation expense Fixed out-of-pocket operating $ 75,000 $55,000 costs The company's discount rate is 18%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor using tables. Required: Calculate the payback period for each product. (Round your answers to 2 decimal 1. places.) Product A Product B Payback period 2.94 years 2.97 years