Check my work Lou Barlow, a divisional manager for Sage Company, has an opportun
ID: 2530522 • Letter: C
Question
Check my work Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- Product AProduct B 340,000 525,000 year period. He has computed the cost and revenue estimates for each product as follows: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs 10 points 380,000 480,000 $ 172,000 225,000 $ 68,000 105,000 $ 83,000 66,000 eBook Print The company's discount rate is 17%. References gnore income taxes. Note that Excel or a financial calculator must be used to calculate items 2-4 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. 4. Calculate the project profitability index for each product. 6a. For each measure, identify whether Product A or Product B is preferred Complete this question by entering your answers in the tabs belowExplanation / Answer
Project A Project B Initial Investment (A) 3,40,000 5,25,000 Sales Revenue 3,80,000 4,80,000 Variable Expense 1,72,000 2,25,000 Fixed Out-of-Pocket Expenses 83,000 66,000 Net Annual Cash Inflow (B) 1,25,000 1,89,000 Payback Period (in Years) = A / B 2.72 2.78 PVIFA @ 17% for 5 Years 4.2735 4.2735 [By using Excel Function PV] PV of Annual Cash Inflows (C) 5,34,188 8,07,692 NPV = C - A 1,94,188 2,82,692 Profitability Index = C / A 1.57 1.54 IRR 24.45% 23.44% [By using Excel Function Rate] Criteria Project A Project B Preferred Project Payback Period 2.72 2.78 Project B Net Present Value 1,94,188 2,82,692 Project B Profitability Index 1.57 1.54 Project A IRR 24.45% 23.44% Project A