Reference no: EM132104962

1. 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 Materials                                      3,000                   6,000

Direct Labor                                            30,000                 45,000

Other cash operating expenses                7,500                  9,000

New equipment costs                               75,000                 100,000

Estimated useful life (no salvage)           5 years                 5 years

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? 

2. A company purchases a machine for $1,000,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly net income of $60,000 after taxes of 30% to be received uniformly throughout each year. What is the accounting rate of return?