Question

cash payback method

Cash Payback Method Lly Products Company is considering an investment in one of two new product lines. The investment required for elither product line is $540,000. The net cash flows associated with each product are as follows: Year Liquid Soap Body Lotion $ 90,000 $170,000 150,000 90,000 3 120,000 90,000 100,000 90,000 4 70,000 90,000 90,000 40,000 40,000 90,000 30,000 90,000 8 $720,000 $720,000 Total 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 net cash flows in net cash flows in the early years of the project life will be favored over the one with the b. The project with the the initial years

Answer 1

Payback period	Liquid soap		Body Lotion
Time	Amount	Cumulative	Amount	Cumulative
-	(540,000.00)	(540,000.00)	(540,000.00)	(540,000.00)
1.00	170,000.00	(370,000.00)	90,000.00	(450,000.00)
2.00	150,000.00	(220,000.00)	90,000.00	(360,000.00)
3.00	120,000.00	(100,000.00)	90,000.00	(270,000.00)
4.00	100,000.00	-	90,000.00	(180,000.00)
5.00	70,000.00	70,000.00	90,000.00	(90,000.00)
6.00	40,000.00	110,000.00	90,000.00	-
7.00	40,000.00	150,000.00	90,000.00	90,000.00
8.00	30,000.00	180,000.00	90,000.00	180,000.00
Payback period		4 Years		6 Years
a) Liquidity soap should be preferred
Paback period for liquidity soap	4.00
Paback period for body lotion	6.00
b)The project with the higher net cash flows in the early years of the project life will be preferred over the one with the lower net cash flows in initial years