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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![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 th
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
The 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 likely
Req 1
Complete 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 $ 67,000
Req 2
Payback period
Req 3
Reg 4
Product B
Product B
years
Reg 5
Calculate the payback period for each product. (Round your answers to 2 decimal places.)
Product A
years
Req 6A
Req 2 >
Req 68](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3aa58448-42c4-4b26-b913-9f3436adc5a0%2Fc5e00e5a-e1bd-485b-a164-f35b328788f4%2Fw46rrg4_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 th
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
The 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 likely
Req 1
Complete 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 $ 67,000
Req 2
Payback period
Req 3
Reg 4
Product B
Product B
years
Reg 5
Calculate the payback period for each product. (Round your answers to 2 decimal places.)
Product A
years
Req 6A
Req 2 >
Req 68
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