Henkel Company is considering three long-term capital investment proposals. Each
ID: 2380800 • Letter: H
Question
Henkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.Project Kilo
Project Lima Project Oscar
Capital investment
$165,850
$176,550
$202,800 Annual net income:
Year 1
13,910 18,725
29,425
2
13,910 17,655
24,075
3
13,910 16,585
23,005
4
13,910 12,305
14,445
5
13,910 9,095
13,375
Total
$69,550 $74,365
$104,325
Depreciation is computed by the straight-line method with no salvage value. The company Henkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.
Project Kilo
Project Lima Project Oscar
Capital investment
$165,850
$176,550
$202,800 Annual net income:
Year 1
13,910 18,725
29,425
2
13,910 17,655
24,075
3
13,910 16,585
23,005
4
13,910 12,305
14,445
5
13,910 9,095
13,375
Total
$69,550 $74,365
$104,325
Depreciation is computed by the straight-line method with no salvage value. The company Henkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.
Project Kilo
Project Lima Project Oscar
Capital investment
$165,850
$176,550
$202,800 Annual net income:
Year 1
13,910 18,725
29,425
2
13,910 17,655
24,075
3
13,910 16,585
23,005
4
13,910 12,305
14,445
5
13,910 9,095
13,375
Total
$69,550 $74,365
$104,325
Depreciation is computed by the straight-line method with no salvage value. The company Henkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.
Project Kilo
Project Lima Project Oscar
Capital investment
$165,850
$176,550
$202,800 Annual net income:
Year 1
13,910 18,725
29,425
2
13,910 17,655
24,075
3
13,910 16,585
23,005
4
13,910 12,305
14,445
5
13,910 9,095
13,375
Total
$69,550 $74,365
$104,325
Depreciation is computed by the straight-line method with no salvage value. The company Henkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows. Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) (Refer the below table) Compute the cash payback period for each project.
Explanation / Answer
NOTE:-ANNUAL DEPRECIATION
165850/5
=33170
176550/5
=35310
202800/5
=40560
ANNUAL CASHFLOW = ANNUAL NET INCOME + ANNUAL DEPRECIATION.
CASH PAYBACK PERIOD
3+[(165850-47080*3)/47080]
= 3+0.52
=3.52 YEARS
3+[(176550-54035-52965-51895)/47615]
=3+0.37
=3.37 YEARS
3+[(202800-69985-64635-63565)/55005
=3+0.08
=3.08 YEARS
NOTE:-ANNUAL DEPRECIATION
165850/5
=33170
176550/5
=35310
202800/5
=40560
ANNUAL CASHFLOW = ANNUAL NET INCOME + ANNUAL DEPRECIATION.
CASH PAYBACK PERIOD
3+[(165850-47080*3)/47080]
= 3+0.52
=3.52 YEARS
3+[(176550-54035-52965-51895)/47615]
=3+0.37
=3.37 YEARS
3+[(202800-69985-64635-63565)/55005
=3+0.08
=3.08 YEARS
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