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Problem - Bach'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 Bach's requires a four-year pretax payback on its investments, should the company invest in the new product line? Explain
B: Should Bach's use any other capital project evaluation methods before making an investment decision? Explain.
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