Cash Payback MethodLily 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 Lotion1 $170,000 $ 90,000 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

The payback period refers to the period that is required to recover the initial cost. With the help…

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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Cash Payback Method

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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