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: 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 $ 380,000 $ 410,000 $ 186,000 $ 76,000 $ 89,000 Product B $ 575,000 $ 490,000 $ 218,000 $ 115,000 $ 70,000
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 22% 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 $ 380,000 $ 410,000 $ 186,000 $ 76,000 $ 89,000 Product B $ 575,000 $ 490,000 $ 218,000 $ 115,000 $ 70,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Number 1 is Product A = 2.81 and Product B = 2.85
Number 2 is Product A = 23,733 and Product B = 29,104
Number 3 is Product A = 22.8 and Product B = 22.3
Number 5 is Product A = 15.5 and Product B = 15.1
Number 6 is NPT = B, PI = A, PP = A,
I need help with Number 4 and 6B
Thank you
![Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, LO7-5, LO7-6]
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:
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 20%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
Req 1
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 project profitability index for each product.
5. Calculate the simple rate of return for each product.
6a. For each measure, identify whether Product A or Product B is preferred.
6b. Based on the simple rate of return, Lou Barlow would likely:
Reg 2
Complete this question by entering your answers in the tabs below.
Req 3
Project profitability index
Product A Product B
Product A
1.06
$ 380,000
$ 410,000
186,000
76,000
$
$
$ 89,000
Req 4
Answer is complete but not entirely correct.
$ 575,000
$ 490,000
$ 218,000
$ 115,000
$ 70,000
1.05 X
< Req 3
Req 5
Calculate the project profitability index for each product. (Round your answers to 2 decimal places.)
Product
B
Req 6A
Req 6B
Req 5 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb0c53c3c-d25b-4f46-ae7f-d9559756d1d4%2Fae689a82-8f85-448b-8f32-ef03811f1526%2Ff8o2yfm_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, LO7-5, LO7-6]
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:
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 20%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
Req 1
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 project profitability index for each product.
5. Calculate the simple rate of return for each product.
6a. For each measure, identify whether Product A or Product B is preferred.
6b. Based on the simple rate of return, Lou Barlow would likely:
Reg 2
Complete this question by entering your answers in the tabs below.
Req 3
Project profitability index
Product A Product B
Product A
1.06
$ 380,000
$ 410,000
186,000
76,000
$
$
$ 89,000
Req 4
Answer is complete but not entirely correct.
$ 575,000
$ 490,000
$ 218,000
$ 115,000
$ 70,000
1.05 X
< Req 3
Req 5
Calculate the project profitability index for each product. (Round your answers to 2 decimal places.)
Product
B
Req 6A
Req 6B
Req 5 >
![Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, LO7-5, L07-6]
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:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
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.
Product A
The company's discount rate is 20%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
4. Calculate the project profitability index for each product.
5. Calculate the simple rate of return for each product.
Req 1
$ 380,000
Req 2
Req 3
6a. For each measure, identify whether Product A or Product B is preferred.
6b. Based on the simple rate of return, Lou Barlow would likely:
$410,000
$ 490,000
$ 186,000
$ 218,000
$ 76,000 $ 115,000
$ 89,000 $ 70,000
Req 4
Complete this question by entering your answers in the tabs below.
Product B
Pea 64
$575,000
Answer is complete but not entirely correct.
Based on the simple rate of return, Lou Barlow would likely:
Accept Product A X
Accept Product B
Reject both products
Req 5
Req 6A
Req 6B](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb0c53c3c-d25b-4f46-ae7f-d9559756d1d4%2Fae689a82-8f85-448b-8f32-ef03811f1526%2Fm766n8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, LO7-5, L07-6]
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:
Initial investment:
Cost of equipment (zero salvage value)
Annual revenues and costs:
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
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.
Product A
The company's discount rate is 20%.
Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
4. Calculate the project profitability index for each product.
5. Calculate the simple rate of return for each product.
Req 1
$ 380,000
Req 2
Req 3
6a. For each measure, identify whether Product A or Product B is preferred.
6b. Based on the simple rate of return, Lou Barlow would likely:
$410,000
$ 490,000
$ 186,000
$ 218,000
$ 76,000 $ 115,000
$ 89,000 $ 70,000
Req 4
Complete this question by entering your answers in the tabs below.
Product B
Pea 64
$575,000
Answer is complete but not entirely correct.
Based on the simple rate of return, Lou Barlow would likely:
Accept Product A X
Accept Product B
Reject both products
Req 5
Req 6A
Req 6B
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