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: 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 Payback period 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. Complete this question by entering your answers in the tabs below. Req 3 Product A Product A Req 4 years $ 260,000 $ 310,000 $ 144,000 $ 52,000 $ 76,000 years Product B $ 470,000 Req 6A Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product B $ 410,000 $ 194,000 $ 94,000 $ 58,000
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 20% 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 Payback period 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. Complete this question by entering your answers in the tabs below. Req 3 Product A Product A Req 4 years $ 260,000 $ 310,000 $ 144,000 $ 52,000 $ 76,000 years Product B $ 470,000 Req 6A Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product B $ 410,000 $ 194,000 $ 94,000 $ 58,000
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
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Question
Oo.32.
Subject:- Account
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 20% 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 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
Req 1
Req 2
Payback period
4. Calculate the profitability Index for each product
6a. For each measure, Identify whether Product A or Product B is preferred.
Complete this question by entering your answers in the tabs below.
Req 3
Product A
Product A
Req 4
years
$ 260,000
$ 310,000
$ 144,000
$ 52,000
$ 76,000
Product B
years
Calculate the payback period for each product. (Round your answers to 2 decimal places.)
Product B
$ 470,000
$ 410,000
$ 194,000
$ 94,000
$ 58,000
Req 6A
Reg 2 >
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