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: 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?

Question

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:  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?

A Company Is Trying to Decide Which of Two New