CheLou 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 thelast three years. He has computed the cost and revenue estimates for each product as follows:ProductAProduct BInitial investment:Cost of equipment (zero salvage value)Annual revenues and costs:Sales revenuesVariable expenses$ 190,000$ 400,000$ 270,000$ 128,000$ 38,000$ 72,000$ 370,000$ 178,000$ 80,000$ 52,000Depreciation expenseFixed out-of-pocket operating costsThe company's discount rate is 17%.Click here to view Exhibit 14B-1 and Exhibit 14B-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 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, which of the two products should Lou's division accept?< Prev11 of 11Nextato search近 EXHIBIT 14B-1 Present Value of $t;Periods4%5%6%7%8%9%10%11%12%13%14%15%16%17%18%19%20%21%22%23%24%25%0.962 0.952 0.943 0.935 0.926 0.9170.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.8130.806 0.8000.925 0.907 0.890 0.873 0.8570.8420.8260,8120.7970.783 0.7690,756 07430.7310.706 0.694 0.6830,624 0,609 0.593 0,579 0.564 0.5510.7180,6720,6610,650 0,6400.889 0.864 0.840 0.816 0.7940.7720.7510.731 0.7120.693 0.6750.658 0.6410.5370.5240.5124.0.855 0.823 0,792 0,763 0.7350.7080.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0,5160,6210.499 0,482 0,4670,451 0.437 0.423 0.4100.822 0.784 0.7470.7130.6810,6500.593 0.567 0.543 0.5190.497 0.476 0.456 0.437 0.4190.402 0.386 0.3700.355 0.3410.3280.7900,7460.705 0,6660.6300.5960.5640.535 0.507 0.480 0.456 0.4320.4100.390 0.370 0.352 0.3350.3190.3030.2890.2750.2620,760 0.7110.665 0.6230.5830.5470.5130.482 0.452 0.425 0.400 0.376 0.354 0.333 0.3140.296 0.2790.263 0.249 0.235 0.222 0.21080.7310.677 0.627 0.582 0.540 0.502 0.4670.434 0.404 0.376 0.351 0.3270.305 0.285 0,266 0.249 0.2330.2180.204 0.1910.1790.1680.7030.645 0.592 0.5440.500 0.4600.424 0.391 0.3610.333 0.308 0,284 0.263 0.243 0.225 0.209 0.1940.1800.1670.15501440.134100.676 0.6140.5580.508 0.4630.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.1910.1760.1620.1490.1370.1260.1160107110,650 0,585 0,527 0.4750.429 0.388 0.350 0.317 0.287 0.2610.237 0.2150.1950.1780.1620.148 0,1350.1230.1120.1030.094 0.0860.102 0.092 0.083 0.076 0.0690.104 0.093 0.084 0.075 0.068 0.061 0.0550.099 0.088 0.078 0.069 0.062 0.055 0.049 0.0440.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035120.625 0.5570.4970.4440.3970.3560.3190.286 0.257 0.2310.208 0.1870,1680,1520.1370.1240.112130.601 0.530 0,4690.4150.368 0.326 0.290 0.258 0.229 0.204 0.1820.1630.1450.1300.116140.5770.505 0.4420.388 0.340 0.299 0.263 0.232 0.205 0.1810.1600.1410.1250.111150.555 0.4810.4170.3620.3150.275 0.239 0.209 0.1830.1600.1400.1230.062 0.054 0,047 0.042 0.036 0.032 0.0280.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023160.534 0.458 0.394 0.3390.292 0.252 0.218 0.1880.16301410.1230.107 0.093 0.0810.071170.5130.4360.3710.3170.270 0.2310.1980.1700.1460.1250.1080.069 0.059 0.051 0,044 0.038 0.032 0.028 0.024 0.0210.098 0.083 0.070 0.060 0,051 0.043 0.037 0.031 0,027 0.023 0.020 0.0170.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014180.494 0.4160.350 0.296 0.250 0.2120.1800.1530.1300.1110.095 0.0810.018190.475 0.3960.3310.2770.232 0,1940.1640.1380.1160.014200.456 0.3770.3120.258 0.2150.1780.1490.1240.1040.0120.439 0.359 0.294 0.242 0.1990.278210.1640.1350.1120.093 0.0770.064 0.053 0,044 0,0370.0310.026 0.022 0.0180.015 0.0130.0110,0090.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.0130.074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.0120.009 0.0070.010 0.009 0.007 0.0060.015 0.013 0.010 0.008 0.007 0.006 0.0050.013 0.010 0.009 0.007 0.006 0.005 0.004220.422 0.3420.226 0.1840.1500.1230.1010.0110.406 0.326 0.262 0.2110.390 0.310230.1700.1380.1120.091240.2470.1970.1580.1260.1020.082 0.066 0,053 0.043 0.035 0.028 0,023 0.019250.375 0.295 0.233 0,1840.1460.1160.092 0.074 0.059 0.0470.038 0.030 0.024 0.020 0.0160,009 0.007 0,006 0,005 0.004 0.0030.098 0.076 0.060 0.047 0.037. 0.029 0.023 0.018 0.014 0.011. 0.009 0.007 0.006 0.005 0.004 0.003 0.0020,012 0.010 0.008 0,006 0.005 0.004 0.003 0.002 0.0020.008 0.006 0,005 0.004 0.003 0.002 0.002 0.0020.012 0,009 0.007 0.005 . 0.004 0.003 0.003 0.002 0.002 0.0010.281 0.220 0.1720.268 0.207 0.161260.3610.1350.1060.084 0.066 0.053 0.042 0.033 0.026 0.021 0.0170.0140.011270.3470.1250.090 0.069 0,054 0.042 0,0330.333 0.255 0.1960.321 0.243 0.185280.1500.1160.026 0.020 0.0160.1410.1070.082 0.063 0.048 0.037 0.029 0.022 0.0170.014 0.011290.308 0.2310.208 0.142300.1740.1310.099 0.075 0,057 0.044 0.033 0.026 0.020 0.015400.097 0.067 0.046 0.032 0.022 0.0150.0110.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000asearch

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 Product B Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: $ 190,000 $ 400,000 Sales revenues $ 270,000 $ 128,000 $ 38,000 $ 72,000 $ 370,000 $ 178,000 $ 80,000 $ 52,000 Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-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.

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 Product B Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: $ 190,000 $ 400,000 Sales revenues $ 270,000 $ 128,000 $ 38,000 $ 72,000 $ 370,000 $ 178,000 $ 80,000 $ 52,000 Variable expenses Depreciation expense Fixed out-of-pocket operating costs The company's discount rate is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-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.

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 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: $ 170,000 $ 380,000 Sales revenues Variable expenses $350,000 $ 250,000 $ 120,000 $ 170,000 Depreciation expense $ 34,000 $ 76,000 Fixed out-of-pocket operating costs $ 70,000 $ 50,000 The company's discount rate is 15% Click here to view Exhibit 148-1 and Exhibit 148-2, 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 Index for…
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed) Overhaul of the equipment in two years. Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 275,000 $ 86,000 $10,000 $ 13,000 $ 420,000 Variable expenses $ 205,000 Fixed out-of-pocket operating costs $ 87,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
Two equipments A and B have initial costs of $100,000 and $120,000 and expected to generate annual savings during the first year of $88,000 and $98,000 respectively. The value of these annual savings is expected to increase by 10% per year (over previous period). Assume service life of 2 years, operating hours per year of 4500, Determine the $ savings/ hour for each equipment and select the optimal equipment based on your results. Use i = 10%.
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $5,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales $ 5,100,000 Variable expenses 2,280,000 Contribution margin 2,820,000 Fixed expenses: Advertising, salaries, and otherfixed out-of-pocket costs $ 870,000 Depreciation 1,160,000 Total fixed expenses 2,030,000 Net operating income $ 790,000 Required: 2. What is the project’s internal rate of return to the nearest whole percent? 3. What is the project’s simple rate of return?
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project requiring a $4,200,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 20%. The project would provide net operating income each year for five years as follows: Sales $ 4,100,000 Variable expenses 1,880,000 Contribution margin 2,220,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 770,000 Depreciation 840,000 Total fixed expenses 1,610,000 Net operating income $ 610,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What is the project’s net present value? 2. What is the project’s internal rate of return to the nearest whole…
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Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,650,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: $ 4,000,000 1,750,000 Sales Variable expenses Contribution margin Fixed expenses: 2,250,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation $745,000 745,000 Total fixed expenses 1,490,000 Net operating income $ 760,000
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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 last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 190,000 $ 400,000 Annual revenues and costs: Sales revenues $ 270,000 $ 370,000 Variable expenses $ 128,000 $ 178,000 Depreciation expense $ 38,000 $ 80,000 Fixed out-of-pocket operating costs $ 72,000 $ 52,000 The company's discount rate is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability index. 5.…
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 18%. The project would provide net operating income each year for five years a follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income. EXHIBIT 7B-1 Present Value of $1; Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What is the project's net present value? 2. What is the project's internal rate of return to the nearest whole percent? 3. What is the project's simple rate of return? 4-a. Would…
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,170,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales $ 4,500,000 Variable expenses 2,000,000 Contribution margin 2, 500,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $780,000 Depreciation 1,034,000 Total fixed expenses 1,814,000 Net operating income $ 686,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3 a. Would the company want Derrick to pursue…
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years Annual revenues and costs: Sales revenues $ 155,000 $ 65,000 $ 9,000 $ 14,500 $ 300,000 Variable expenses $ 145,000 Fixed out-of-pocket operating costs $ 75,000 When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Net present value Required: Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar amount.