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ou 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 18% each of the last three ears. He has computed the cost and revenue estimates for each product as follows: The company's discount rate is 16%. Required: . 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. 1 Coloriate the menfitabilitu inden for pehmendus 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 Product B $170,000 $380,000 $250,000 $350,000 $120,000 $170,000 $34,000 $76,000 $50,000 $70,000

ou 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 18% each of the last three ears. He has computed the cost and revenue estimates for each product as follows: The company's discount rate is 16%. Required: . 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. 1 Coloriate the menfitabilitu inden for pehmendus 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 Product B $170,000 $380,000 $250,000 $350,000 $120,000 $170,000 $34,000 $76,000 $50,000 $70,000

Essentials Of Investments
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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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 18% each of the last three years. He has computed the cost and revenue estimates for each product as follows: The company's discount rate is 16%. 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. Initial investment. Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs 4. Calculate the profitability index for each product. 5. Calculate the simple rate of return for each product. 6. Which of the two products should Lou's division pursue? Why? Product A Product B $170,000 $380,000 $250,000 $350,000 $120,000 $170,000 $34,000 $76,000 $70,000 $50,000
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 18% each of the last three years. He has computed the cost and revenue estimates for each product as follows: The company's discount rate is 16%. 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. Initial investment. Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs 4. Calculate the profitability index for each product. 5. Calculate the simple rate of return for each product. 6. Which of the two products should Lou's division pursue? Why? Product A Product B $170,000 $380,000 $250,000 $350,000 $120,000 $170,000 $34,000 $76,000 $70,000 $50,000
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