A Company Is Trying to Decide Which of Two New

question 54

Essay

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: $\begin{array}{lrr}&\text { Product A }&\text { Product B }\\\text { Sales } & \$ 80,000 & \$ 96,000 \\\text { Direct materials } & 3,000 & 6,000 \\\text { Direct labor } & 30,000 & 45,000 \\\text { Other cash operating expenses } & 7,500 & 9,000\\\\\text { New equipment costs } & 75,000 & 100,000 \\\text { Estimated useful life (no salvage) } & 5 \text { years } & 5 \text { years }\end{array}$
The company has a 30% tax rate, it uses the straight-line depreciation method, and it 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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Definitions:

Social Roles

The parts that individuals play as members of a social group, which entail specific behaviors and expectations.

Personality Development

Development involving the ways that the enduring characteristics that differentiate one person from another change over the life span.

Career

The progression and actions of an individual throughout their working life, encompassing various occupations and professional experiences.

Career Consolidation

A stage that is entered between the ages of 20 and 40, when young adults become centered on their careers.