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

Please find below the NPV tables:

To summarize, the NPVs are:

Kilo: -2,193.25 (i.e. a negative value)

Lima: -3,780.51 (i.e. a negative value)

Oscar: 2,545.30

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 Discounting factors                    1.00000    0.86957    0.75614    0.65752    0.57175    0.49718 PV of cashflows -149,400 38,186 33,205 28,874 25,108 21,833 NPV                 -2,193.25

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