Question
In: Accounting
Cash Payback Method Lily Products Company is considering an investment in one of two new product...
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.
Solutions
Expert Solution
Sollution a
| a) Liquidity soap should be preferred | ||
| Paback period for liquidity soap | 4 | years |
| Paback period for body lotion | 6 | years |
working
| Payback period | ||||
| Liquid soap | Body Lotion | |||
| Time | Amount | Cumulative | Amount | Cumulative |
| 0 | -$540,000.00 | -$540,000.00 | -$540,000.00 | -$540,000.00 |
| 1 | $170,000.00 | -$370,000.00 | $90,000.00 | -$450,000.00 |
| 2 | $150,000.00 | -$220,000.00 | $90,000.00 | -$360,000.00 |
| 3 | $120,000.00 | -$100,000.00 | $90,000.00 | -$270,000.00 |
| 4 | $100,000.00 | $0.00 | $90,000.00 | -$180,000.00 |
| 5 | $70,000.00 | $70,000.00 | $90,000.00 | -$90,000.00 |
| 6 | $40,000.00 | $110,000.00 | $90,000.00 | $0.00 |
| 7 | $40,000.00 | $150,000.00 | $90,000.00 | $90,000.00 |
| 8 | $30,000.00 | $180,000.00 | $90,000.00 | $180,000.00 |
| Payback period | 4 Years | 6 Years |
Sollution b
| The project with the higher net cash flows in the early years of the project life will be Favored over the one with the lower net cash flows in initial years |
ekkarill92 answered 1 year agoRelated Solutions
Cash Payback Method Lily Products Company is considering an investment in one of two new product...
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...
Cash Payback Method Lily Products Company is considering an investment in one of two new product...
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...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$101,000
$85,000
2
83,000
99,000
3
71,000
68,000
4
65,000
48,000
5
20,000
40,000
Total
$340,000
$340,000
Each project requires an investment of $184,000. A rate of 12%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$175,000
$146,000
2
143,000
172,000
3
123,000
118,000
4
112,000
82,000
5
35,000
70,000
Total
$588,000
$588,000
Each project requires an investment of $318,000. A rate of 6%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$111,000
$93,000
2
91,000
109,000
3
79,000
75,000
4
71,000
52,000
5
22,000
45,000
Total
$374,000
$374,000
Each project requires an investment of $202,000. A rate of 15%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$144,000
$121,000
2
118,000
141,000
3
102,000
97,000
4
92,000
68,000
5
29,000
58,000
Total
$485,000
$485,000
Each project requires an investment of $262,000. A rate of 12%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$173,000
$144,000
2
141,000
170,000
3
122,000
116,000
4
110,000
81,000
5
35,000
70,000
Total
$581,000
$581,000
Each project requires an investment of $314,000. A rate of 15%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows: Year
Plant Expansion Retail Store Expansion 1 $143,000 $120,000 2
117,000 140,000 3 101,000 96,000 4 91,000 67,000 5 29,000 58,000
Total $481,000 $481,000 Each project requires an investment of
$260,000. A rate of 10% has been selected for the net present value
analysis. Present Value of $1 at Compound Interest Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$145,000
$121,000
2
119,000
143,000
3
102,000
98,000
4
93,000
68,000
5
29,000
58,000
Total
$488,000
$488,000
Each project requires an investment of $264,000. A rate of 6%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The
estimated net cash flows from each project are as follows:
Year
Plant Expansion
Retail Store Expansion
1
$169,000
$142,000
2
139,000
166,000
3
120,000
114,000
4
108,000
80,000
5
34,000
68,000
Total
$570,000
$570,000
Each project requires an investment of $308,000. A rate of 15%
has been selected for the net present value analysis.
Present Value of $1 at Compound
Interest
Year...
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