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 23% 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: $ 390,000 $ 585,000 Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 420,000 $ 185,000 $ 78,000 $ 90,000 $ 500,000 $ 222,000 $ 117,000 $70,000 The company's discount rate is 21%.
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 23% 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: $ 390,000 $ 585,000 Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $ 420,000 $ 185,000 $ 78,000 $ 90,000 $ 500,000 $ 222,000 $ 117,000 $70,000 The company's discount rate is 21%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Calculate the internal rate of return for each product. (Round your answers to 1 decimal place i.e
as 12.3%.)
Product
Product A](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbd787623-68c6-48c3-87e0-7977982f5372%2Fdec5e082-e76f-4ed4-8ef5-e7a8f2c5bdcb%2Fa4b134g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Calculate the internal rate of return for each product. (Round your answers to 1 decimal place i.e
as 12.3%.)
Product
Product A
![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 23% 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:
$ 390,000
$ 585,000
$ 420,000
$ 185,000
$ 78,000
$ 90,000
$ 500,000
$ 222,000
$ 117,000
$ 70,000
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 21%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbd787623-68c6-48c3-87e0-7977982f5372%2Fdec5e082-e76f-4ed4-8ef5-e7a8f2c5bdcb%2Fj1ffh7p_processed.jpeg&w=3840&q=75)
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 23% 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:
$ 390,000
$ 585,000
$ 420,000
$ 185,000
$ 78,000
$ 90,000
$ 500,000
$ 222,000
$ 117,000
$ 70,000
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket operating costs
The company's discount rate is 21%.
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