PLEASE HELP CALCULATE THE FOLLOWING--- Required: 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?
PLEASE HELP CALCULATE THE FOLLOWING--- Required: 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?
PLEASE HELP CALCULATE THE FOLLOWING--- Required: 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?
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)
$ 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 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables.
PLEASE HELP CALCULATE THE FOLLOWING--- Required:
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?
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
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Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor