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
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
Related questions
Question
Tt1.
Please assist and show work if able.
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
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
Publisher:
McGraw-Hill Education