Reference no: EM132418605
Problem:
Loui Weston, a manager for Super 8 Hotels 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 3 years. We have computed the cost and revenue estimates for each product as follows:
Product 1 Product 2
Initial investment: Product A Product B
Cost of equipment (no value for salvage)$260,000 $480,000
Annual revenues and cost:
Sales revenues $330,000 $430,000
Variable expenses $152,000 $202,000
Depreciation expense $52,000 $96,000
Fixed out-of-pocket operating costs $78,000 $58,000
The company's discount rate is 14 percent.
Questions:
What is the equation for finding out payback period as well as Net Present value?