(a) Henkel Company is considering three long-term capital investment proposals.
ID: 2470453 • Letter: #
Question
(a)
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 $167,400 $178,200 $212,550 Annual net income: Year 1 14,040 18,900 29,700 2 14,040 17,820 24,300 3 14,040 16,740 23,220 4 14,040 12,420 14,580 5 14,040 9,180 13,500 Total $70,200 $75,060 $105,300
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)
Explanation / Answer
PBP Kilo Lima Oscar Time Amount Cumulative Amount Cumulative Amount Cumulative - (167,400.00) (167,400.00) (178,200.00) (178,200.00) (212,550.00) (212,550.00) 1.00 47,520.00 (119,880.00) 54,540.00 (123,660.00) 72,210.00 (140,340.00) 2.00 47,520.00 (72,360.00) 53,460.00 (70,200.00) 66,810.00 (73,530.00) 3.00 47,520.00 (24,840.00) 52,380.00 (17,820.00) 65,730.00 (7,800.00) 4.00 47,520.00 22,680.00 48,060.00 30,240.00 57,090.00 49,290.00 5.00 47,520.00 70,200.00 44,820.00 75,060.00 56,010.00 105,300.00 PBP 3 + 24,840/47,520 3+17,820/48,060 3 + 7,800/57,090 PBP 3.52 years Approx 3.37 Years approx 3.14 years approx Particulars Kilo Lima Oscar investment 167,400.00 178,200.00 212,550.00 Depreciation per Year = Amount/5 33,480.00 35,640.00 42,510.00 Add dep to net income to derive cash flows
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