Compute the net present value for each project. (Round answers to 0 decimal plac

Question

Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).)

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 $164,300 $174,900 $208,650 Annual net income:     Year 1 13,780 18,550 29,150 2 13,780 17,490 23,850 3 13,780 16,430 22,790 4 13,780 12,190 14,310 5 13,780 9,010 13,250 Total $68,900 $73,670 $103,350

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.)

Explanation / Answer

Calculation of Cash Payback Period.                          
   Cash Payback Period = (Initial Outflows / Annual Equal inflows)                      
                          
   Cash Payback Period                      
Project Kilo   =164300/13780                      
   = 12 Years (Approx)                      
Project Lima   =174900/ ((18550+17490+16430+12190+9010)/5)                      
   =12.75 Years (Approx)                      
Project Oscar   =208650 / ((29150+23850+22790+14310+13250)/5)                      
   =10 Years (Approx)                      
                          
Calculation of Net Present Value (NPV)                          
       Project Kilo   Project Lima   Project Oscar          
   Present Value of INFLOWS (A)   46300.8   51728   60109.6          
   Present Value of OUT-FLOWS (B)   164300   174900   208650          
   NPV =( A-B)   -117,999.20    -123,172.00    -148,540.40           
                          
                          
Project Kilo       Year -1   Year -2   Year -3   Year -4   Year -5   TOTAL
   PV Factor @15 % Pa (A)   =1/((1+0.15)^1) = 0.87   =1/((1+0.15)^2) = 0.76   =1/((1+0.15)^3) = 0.66   =1/((1+0.15)^4) = 0.57   =1/((1+0.15)^5) =0.50  
   Inflow (B)   13780   13780   13780   13780   13780  
   Present Value = (A*B)   11988.6   10472.8   9094.8   7854.6   6890   46300.8
                          
Project Lima       Year -1   Year -2   Year -3   Year -4   Year -5   TOTAL
   PV Factor @15 % Pa (A)   =1/((1+0.15)^1) = 0.87   =1/((1+0.15)^2) = 0.76   =1/((1+0.15)^3) = 0.66   =1/((1+0.15)^4) = 0.57   =1/((1+0.15)^5) =0.50  
   Inflow (B)   18550   17490   16430   12190   9010  
   Present Value = (A*B)   16138.5   13292.4   10843.8   6948.3   4505   51728
                          
Project Oscar       Year -1   Year -2   Year -3   Year -4   Year -5   TOTAL
   PV Factor @15 % Pa (A)   =1/((1+0.15)^1) = 0.87   =1/((1+0.15)^2) = 0.76   =1/((1+0.15)^3) = 0.66   =1/((1+0.15)^4) = 0.57   =1/((1+0.15)^5) =0.50  
   Inflow (B)   29150   23850   2790   14310   13250  
   Present Value = (A*B)   25360.5   18126   1841.4   8156.7   6625   60109.6

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