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:Product AProduct Binitial investment:Cost of equipment (zero salvage value) |Annual revenues and costs:Sales revenuesVariable expenses Depreciation expenseFixed out-of-pocket operating costs$ 176, 600$ 260,000$ 124,000$ 36,000$ 71,000$ 390, 0901 360,000$ 174, 000$ 78,000$ 59,000
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 17% each of the last three years. He has computed the cost and revenue estimates for each product as follows:Product AProduct Binitial investment:Cost of equipment (zero salvage value) |Annual revenues and costs:Sales revenuesVariable expenses Depreciation expenseFixed out-of-pocket operating costs$ 176, 600$ 260,000$ 124,000$ 36,000$ 71,000$ 390, 0901 360,000$ 174, 000$ 78,000$ 59,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 17% each of the last three years. He has computed the cost and revenue estimates for each product as
follows:Product AProduct Binitial investment:Cost of equipment (zero salvage value) |Annual revenues and costs:Sales
revenuesVariable expenses Depreciation expenseFixed out-of-pocket operating costs$ 176, 600$ 260,000$ 124,000$
36,000$ 71,000$ 390, 0901 360,000$ 174, 000$ 78,000$ 59,000
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