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:

Product A Product B
Unit sales 25,000 20,000
Unit sales price $ 30 $ 30

Direct materials $ 15,000 $ 8,000
Direct labor $ 120,000 $ 80,000
Other cash operating expenses $ 30,000 $ 25,000

New equipment costs $2,500,000 $1,500,000
Estimated useful life (no salvage) 5 years 5 years

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? Why?

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Status NEW Posted 23 Dec 2017 02:12 PM My Price 10.00

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