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: Product A 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 $ 170,000 250,000 120,000 34,000 70,000 The company's discount rate is 16%. Calculate the project profitability index for each product. $ 380,000 $350,000 $ 170,000 $ 76,000 $ 50,000
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 18% 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: Sales revenues $ Variable expenses $ Depreciation expense $ Fixed out-of-pocket operating costs $ 170,000 250,000 120,000 34,000 70,000 The company's discount rate is 16%. Calculate the project profitability index for each product. $ 380,000 $350,000 $ 170,000 $ 76,000 $ 50,000
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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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 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
Product A Product B
$
$
$
Fixed out-of-pocket operating costs $
Variable expenses
Depreciation expense
170,000
250,000
120,000
34,000
70,000
The company's discount rate is 16%.
Calculate the project profitability index for each product.
$ 380,000
$ 350,000
$ 170,000
$ 76,000
$ 50,000
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