A company is trying to decide which of two new product lines to introduce in the coming year.The predicted revenue and cost data for each product line follows:
$\begin{array}{lrr}
& \underline { \text { Product A } } & \underline { \text { Product B } } \
\text { Sales } & \$ 80,000 & \$ 96,000 \
\text { Direct materials } & 3,000 & 6,000 \
\text { Direct labor } & 30,000 & 45,000 \
\text { Other cash operating expenses } & 7,500 & 9,000\
\
\text { New equipment costs } & 75,000 & 100,000 \
\text { Estimated useful life (no salvage) } & 5 \text { years } & 5 \text { years }
\end{array}$ The company has a 30% tax rate, uses the straight-line depreciation method, and predicts that cash flows will be spread evenly throughout each year.Calculate each product's payback period.If the company requires a payback period of three years or less, which, if either, product should be chosen?

Question

A company is trying to decide which of two new product lines to introduce in the coming year.The predicted revenue and cost data for each product line follows:
 $\begin{array}{lrr}
&  \underline { \text { Product A } } &  \underline { \text { Product B } } \
\text { Sales } & \$ 80,000 & \$ 96,000 \
\text { Direct materials } & 3,000 & 6,000 \
\text { Direct labor } & 30,000 & 45,000 \
\text { Other cash operating expenses } & 7,500 & 9,000\
\
\text { New equipment costs } & 75,000 & 100,000 \
\text { Estimated useful life (no salvage) } & 5 \text { years } & 5 \text { years }
\end{array}$ The company has a 30% tax rate, uses the straight-line depreciation method, and predicts that cash flows will be spread evenly throughout each year.Calculate each product's payback period.If the company requires a payback period of three years or less, which, if either, product should be chosen?

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The Answer of A company is trying to decide which of two new product lines to introduce in the coming year.The predicted revenue and cost data for each product line follows:
 $\begin{array}{lrr}
&  \underline { \text { Product A } } &  \underline { \text { Product B } } \
\text { Sales } & \$ 80,000 & \$ 96,000 \
\text { Direct materials } & 3,000 & 6,000 \
\text { Direct labor } & 30,000 & 45,000 \
\text { Other cash operating expenses } & 7,500 & 9,000\
\
\text { New equipment costs } & 75,000 & 100,000 \
\text { Estimated useful life (no salvage) } & 5 \text { years } & 5 \text { years }
\end{array}$ The company has a 30% tax rate, uses the straight-line depreciation method, and predicts that cash flows will be spread evenly throughout each year.Calculate each product's payback period.If the company requires a payback period of three years or less, which, if either, product should be chosen?

A Company Is Trying to Decide Which of Two New