A Company Is Trying to Decide Which of Two New

question 71

Essay

A company is trying to decide which of two new product lines to introduce in the coming year.The company requires a 12% return on investment.The predicted revenue and cost data for each product line follows:
$\begin{array}{l}\begin{array}{lll}& \underline { \text { Product A } }& \underline { \text { Product B } }\\ \text { Unit sales } &25,000 & 20,000 \\ \text {Unit sales } &\$ 30 & \$ 30\\\\\text { Direct materials } & \$ 15,000 & \$ 8,000 \\\text { Direct labor } & \$ 120,000 & \$ 80,000 \\\text { Other cash operating expenses } & \$ 30,000 & \$ 25,000\\\\\text { New equipment costs } & \$ 2,500,000 & \$ 1,500,000 \\\text { Estimated useful life (no salvage) } & 5 \text { years } & 5 \text { years }\end{array}\end{array}$ The company has a 30% tax rate and it uses the straight-line depreciation method.The present value of an annuity of 1 for 5 years at 12% is 3.6048.Compute the net present value for each piece of equipment under each of the two product lines.Which, if either, of these two investments is acceptable?

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Definitions:

Health Promotion

The process of enabling people to increase control over and improve their health through various strategies and approaches.

Informational Health Appeals

A type of health communication strategy that utilizes facts and information to encourage individuals to make healthier choices.

Credible

Being trustworthy or believable based on evidence, reputation, or reliability.

Tertiary Prevention

Interventions designed to manage and mitigate the impact of an already existing disease by reducing complications and restoring function.