Calculate each products net present value

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Reference no: EM133925856

Problem

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 computed the following cost and revenue estimates for each product:

	Product A	Product B
Initial investment:
Cost of equipment (zero salvage value)	$ 170,000	$ 380,000
Annual revenues and costs:
Sales revenues	$ 250,000	$ 350,000
Variable expenses	$ 120,000	$ 170,000
Depreciation expense	$ 34,000	$ 76,000
Fixed out-of-pocket operating costs	$ 70,000	$ 50,000

The company's discount rate is 16%.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Task

I. Calculate each product's payback period.
II. Calculate each product's net present value.
III. Calculate each product's internal rate of return.
IV. Calculate each product's profitability index. Get the instant assignment help.
V. Calculate each product's simple rate of return.
VI. For each measure, identify whether Product A or Product B is preferred.

Reference no: EM133925856

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