50.1K

Verified Solution

Link Copied!

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 8. Product A Product EB Sales Direct materials Direct labor Other cash operating expenses $80,000 3,000 30,000 7,500 $96,000 6,000 45,000 9,000 75,000 5 years 100,000 5 years New equipment costs Estimated useful life (no salvage) 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) Product A B) Product B C) The Products are equally desirable. D) E) Neither of the products Need more information to compute the payback period. Bower Co. is reviewing a capital investment of $50,000. This project's projected cash flows over a five-year period are estimated at $20,000 each year. Assuming a 12% hurdle rate, calculate the payback period and the breakeven time (BET). 9. The payback period (PP) and the breakeven time (BET) are A) PP is 2.0 years; BET 3.0 years B) PP is 2.2 years; BET 3.50 years C) PP is 3.15 years; BET 2.5 years D) PP is 2.5 years; BET 3.15 years E) PP is 3.0 years; BET 4.0 years 10. The rate that yields a net present value of zero for an investment is the: A) B) C) D) E) Internal rate of return Accounting rate of return. Net present value rate of return. Zero rate of return Payback rate of return

Answer & Explanation Solved by verified expert

See Answer