Problem 7-23 (Algo) Comprehensive Problem [LO7-1, L07-2, LO7-3, L07-5, LO7-6]Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a fivyear period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 22% each of thlast 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 revenuesVariable expensesDepreciation expenseFixed out-of-pocket operating costsThe company's discount rate is 20%.Click here to view Exhibit 78-1 and Exhibit 7B-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 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 likelyReq 1Complete this question by entering your answers in the tabs below.Product A$ 350,000$ 550,000$ 390,000$ 470,000$ 178,000$ 210,000$ 70,000$ 110,000$ 87,000 $ 67,000Req 2Payback periodReq 3Reg 4Product BProduct ByearsReg 5Calculate the payback period for each product. (Round your answers to 2 decimal places.)Product AyearsReq 6AReq 2 >Req 68

1. Payback Period: It's the time taken to recover the initial investment.Formula: Payback Period =…

Problem 7-23 (Algo) Comprehensive Problem [LO7-1, L07-2, LO7-3, L07-5, LO7-6] Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a fiv year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 22% each of t 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 $ 350,000 $390,000 $ 178,000 $70,000 $87,000 Product B 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. $ 550,000 $ 470,000 $ 210,000 $ 110,000 $ 67,000 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.

Problem 7-23 (Algo) Comprehensive Problem [LO7-1, L07-2, LO7-3, L07-5, LO7-6] Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a fiv year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 22% each of t 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 $ 350,000 $390,000 $ 178,000 $70,000 $87,000 Product B 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. $ 550,000 $ 470,000 $ 210,000 $ 110,000 $ 67,000 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.

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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The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $1,000,000. The cost and revenue characteristics of the new product line per year would be: Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $640,000 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product…
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…
Please answer parts 1,2,3. Problem 12-23 (Algo) Comprehensive Problem [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6] 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 24% 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) $ 326,050 $ 515,000 Annual revenues and costs: Sales revenues $ 370,000 $ 470,000 Variable expenses $ 168,000 $ 218,000 Depreciation expense $ 66,000 $ 103,000 Fixed out-of-pocket operating costs $ 82,000 $ 68,000 The company’s discount rate is 15%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Required: 1. Calculate the payback period for each…
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…
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st ↑ Ainsley Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2020 follows: Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year. (Click to view the results of each division.) Read the requirements. Requirement 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Begin by calculating Division A's contribution margin. Sales Contribution margin Requirements 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Division A 2. Calculate the increase or decrease in operating income if Ainsley closes division B. 3. What other factors should the top management of Ainsley consider before making a decision? Print Done X Data table Sales Cost of goods sold Selling, general, and administrative expenses Operating…
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