Problem
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products
for a fiveyear period. His annual pay raises are determined by his division's return on investment ROI which has
exceeded 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
At the last two pages of this ICQ document, you will find Exhibit B and Exhibit B; use them to determine the
appropriate discount factors using table.
Required:
Calculate the payback period for each product.
Calculate the net present value for each product.
Calculate the internal rate of return for each product.
Calculate the project profitability index for each product.
Not covered Galculate the simple rate of return for each product.
a For each measure, identify whether Product or Product is preferred.
