Lily Products Company is considering an investment in one of two new product lines. The investment required for either product line is $540,000. The net cash flows associated with each product are as follows:YearLiquid SoapBody Lotion 1170,00090,000 2150,000 90,000 3120,000 90,000 4100,000 90,000 570,000 90,000 640,000 90,000 740,000 90,000 830,000 90,000 Total$720,000 $720,000 a. Recommend a product offering to Lily Products Company, based on the cash payback period for each product line. _____Payback period for liquid soap Payback period for body lotion b. The project with the _____ net cash flows in the early years of the project life will be favored over the one with the ____ net cash flows in the initial years.

Cash payback method: Cash payback period is the expected time period which is required to recover…

Answered: Lily Products Company is considering an…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 6E: Cash payback method Lily Products Company is considering an investment in one of two new product...

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Lily Products Company is considering an investment in one of two new product lines. The investment required for either product line is $540,000. The net cash flows associated with each product are as follows:

Year	Liquid Soap	Body Lotion
1	170,000	90,000
2	150,000	90,000
3	120,000	90,000
4	100,000	90,000
5	70,000	90,000
6	40,000	90,000
7	40,000	90,000
8	30,000	90,000
Total	$720,000	$720,000

a. Recommend a product offering to Lily Products Company, based on the cash payback period for each product line.
_____

Payback period for liquid soap
Payback period for body lotion

b. The project with the _____ net cash flows in the early years of the project life will be favored over the one with the ____ net cash flows in the initial years.

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