Solution-Limitations of the cash payback method

Limitations of the cash payback method

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Reference no: EM13510853

Cash Payback Method

Bath Works Product 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

Recommend a product offering to Bath Works Products Company, based on the cash payback period for each product line. Please explain your reasoning.
Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?
In general, what are the principal limitations of the cash payback method for evaluating capital investment proposals?

Reference no: EM13510853

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Limitations of the cash payback method

Reference no: EM13510853

Reference no: EM13510853

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