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eBook Calculator Cash Payback Method Lily Products Company is considering an investment in one of two new product lines. The investment required for either 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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