Cash Payback Method Lily Products Company is considering an investment in one of two new...
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Accounting
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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