Why is one product line preferred over the other

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Problem - Cash payback method - Bath Works Products Company is considering an investment in one of two new product lines. The investment required for either product line is $660,000. The net cash flows associated with each product are as follows:

Year

Liquid Soap

Body Lotion

1

$110,000

$210,000

2

110,000

180,000

3

110,000

150,000

4

110,000

120,000

5

110,000

80,000

6

110,000

50,000

7

110,000

50,000

8

110,000

40,000

Total

$880,000

$880,000

Required -

a. Recommend a product offering to Bath Works Products Company, based on the cash payback period for each product line.

b. Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?

Reference no: EM132690508

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