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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Cash payback method
Â
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:
Â
|
year |
liquid soap |
Body lotion |
|
1 |
$170,000 |
$ Â 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 |
Â
a.    Recommend a product offering to Lily Products Company, based on the cash payback period for each product line.
b.   Â
Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?
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