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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 B 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 New equipment costs Estimated useful life (no salvage) 75,000 5 years 100,000 5 years 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) Neither of the products. E) Need more information to compute the payback period. 9. 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). 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 yeans 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) Internal rate of return. B) Accounting rate of return. C) Net present value rate of return. D) Zero rate of return. E) Payback rate of return

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