E26-6

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

1170000 90000

2 150000 90000

3120000 90000

4100000 90000

5 70000 90000

6 40000 90000

74000090000

830000 90000

Total 720000720000

Recommend a product offering to Lily Products Company, based on the cash payback period for each product line. b. Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?