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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
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: Product a Product B sales $80,000 $96,000 Direct material 3,000 6,000 direct labor 30,000 45,000 other cash expenses 7,500 9,000 new equip cost 75,000 100,000 estimated useful life 5 yrs 5yrs 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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