Henkel Company is considering three long-term capital investment proposals. Each

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 $149,400 $165,700 $199,200 Annual net income: Year 1 14,034 18,030 27,179 2 14,034 17,380 23,010 3 14,034 15,980 21,130 4 14,034 12,200 12,825 5 14,034 9,104 11,940 Total $70,170 $ 72,694 $96,084
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 $149,400 $165,700 $199,200 Annual net income: Year 1 14,034 18,030 27,179 2 14,034 17,380 23,010 3 14,034 15,980 21,130 4 14,034 12,200 12,825 5 14,034 9,104 11,940 Total $70,170 $ 72,694 $96,084
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 $149,400 $165,700 $199,200 Annual net income: Year 1 14,034 18,030 27,179 2 14,034 17,380 23,010 3 14,034 15,980 21,130 4 14,034 12,200 12,825 5 14,034 9,104 11,940 Total $70,170 $ 72,694 $96,084
Depreciation is computed by the straight-line method with no salvage value. The company Project Kilo
Project Lima
Project Oscar
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 $149,400 $165,700 $199,200 Annual net income: Year 1 14,034 18,030 27,179 2 14,034 17,380 23,010 3 14,034 15,980 21,130 4 14,034 12,200 12,825 5 14,034 9,104 11,940 Total $70,170 $ 72,694 $96,084
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.) Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 6.52.) Compute the net present value for each project. (Use the above tables.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places, e.g. 15.25.)

Explanation / Answer

Depreciation = capital investment / 5

Annual cashflow = annual net income+depreciation

Cash payback is when cumulative cashflow becomes zero.

Please find below tables for each of the 3 projects:

To summarize, the cash paybacks are as follows:

Kilo: 3.40 years

Lima: 3.33 years

Oscar: 3.16 years

Hope this helped ! Let me know in case of any queries.

Project Kilo Year 1 Year 2 Year 3 Year 4 Year 5 Capital investment 149,400 Depreciation 29,880 Annual net income 14,034 14,034 14,034 14,034 14,034 Operating cash flow -149,400 43,914 43,914 43,914 43,914 43,914 Cumulative cashflows -105,486 -61,572 -17,658 26,256 70,170 Cash payback =3+17,658/43,914 3.40

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