Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. lou barlow, a divisional manager for sage company,

Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one...

80.2K

Verified Solution

Question

Accounting

Lou Barlow, a divisional manager for Sage Company, has anopportunity to manufacture and sell one of two new products for afive-year period. His annual pay raises are determined by hisdivision’s return on investment (ROI), which has exceeded 22% eachof the last three years. He has computed the cost and revenueestimates for each product as follows: Product A Product B Initialinvestment: Cost of equipment (zero salvage value) $ 380,000 $575,000 Annual revenues and costs: Sales revenues $ 410,000 $490,000 Variable expenses $ 186,000 $ 218,000 Depreciation expense$ 76,000 $ 115,000 Fixed out-of-pocket operating costs $ 89,000 $70,000 The company’s discount rate is 20%. Click here to viewExhibit 12B-1 and Exhibit 12B-2, to determine the appropriatediscount factor using tables. Required: 1. Calculate the paybackperiod for each product. 2. Calculate the net present value foreach product. 3. Calculate the internal rate of return for eachproduct. 4. Calculate the project profitability index for eachproduct. 5. Calculate the simple rate of return for each product.6a. For each measure, identify whether Product A or Product B ispreferred. 6b. Based on the simple rate of return, Lou Barlow wouldlikely:

please show all steps

Answer & Explanation Solved by verified expert
3.9 Ratings (599 Votes)
Solution 1 Computation of Annual cash inflows Particulars Product A Product B Sales revenue 410000 490000 Variable expenses 186000 218000 Fixed Out of pocket operating cost 89000 70000 Annual cash inflows 135000 202000 Payback period    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

1)The doctor has determined that the reason you and your child fell ill is that you...

Advance Math
Q

On May 31, 2014, Franklin Company purchased a machine for $205,000. The machine has useful life...

Accounting
Q

26 The potential energy of a system increases if work is done a upon the...

Physics
Q

Find the total cost function C x in thousands of dollars if the marginal cost...

Basic Math
Q

The following information relates to Arlon Manufacturers which will commence business on...

Accounting
Q

Todas las siguientes afirmaciones con respecto a los dividendos en acciones son verdaderas...

Accounting
Q

Journalize the closing entries required to close out the Income Statement accounts. Select Generate Closing...

Accounting
Q

To meet projected annual sales, Bluegill Manufacturers, Inc. needs to produce 75,000 machines for the...

Accounting
Q

need some help guys What assumption does the absorption costing approach make...

Accounting
Q

For financial reporting purposes, the total amount of product costs incurred to make 4,000 units...

Accounting
Q

Haas Company manufactures and sells one product. The following information pertains to each of the...

Accounting
Q

Comprehensive Manufacturing Budget (25 marks) You have been asked to prepare a 5 year...

Accounting