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 22% each of the 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 S $ 87,000 Product B $ 550,000 $ 470,000 $ 210,000 $ 110,000 $ 67,000 The company's discount rate is 20%. Click here to view Exhibit 28-1 and Exhibit ZB-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 22% each of the 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 S $ 87,000 Product B $ 550,000 $ 470,000 $ 210,000 $ 110,000 $ 67,000 The company's discount rate is 20%. Click here to view Exhibit 28-1 and Exhibit ZB-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.
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
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VIEWStep 5: Computation of Net present value (NPV ) if rate of discount is 30% .
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