30. (Payback) John’s Clothing Store is considering a new product line: umbrellas and rain gear. The new product line would require an investment of $20,000 in equipment and fixtures and $40,000 in working capital. Store managers expect the following pattern of net cash inflows from the new product line over the life of the investment.

Year Amount 1 $ 5,000 2 9,000 3 16,000 4 18,000 5 15,000 6 14,000 7 12,000

a. Compute the payback period for the proposed new product line. If John’s requires a four-year pretax payback on its investments, should the company invest in the new product line? Explain.

b. Should John’s use any other capital project evaluation methods before making an investment decision? Explain.