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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 23% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B 5390,000 $585,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs $420,000 $190,000 $ 78,000 $ 90,000 $500,000 $ 222,000 $ 117,000 $70,000 The company's discount rate is 21% 1. Calculate the payback period for each product. (Round your answers to 2 decimal places.) Product years Product B years Payback period Calculate the net present value for each product. (Use the appropriate table to determine the discount factor(s).) Product Product B Net present value 3. Calculate the project profitability index for each product. (Use the appropriate table to determine the discount factor(s). Round your answers to 2 decimal places.) Product A Product B Project profitability index 4. Calculate the simple rate of return for each product. (Round percentage answer to 1 decimal place. i.e. 0.1234 should be considered as 12.3% and use the appropriate table to determine the discount factor(s).) Product Product B Simple rate of return 5a. For each measure, identify whether Product A or Product B is preferred. Net Present Value Profitability Index Payback Period 5b. Based on the simple rate of return, Lou Barlow would likely O Accept Product A Accept Product B O Reject both products

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