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
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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
| 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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