*(a) *(b) Henkel Company is considering three long-term capital investment propo
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Question
*(a)
*(b)
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 $208,650 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’s cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.) (Refer the below table)
Explanation / Answer
b) Net present value for each project
Project Kilo Year Cash Flow PVF PV 0 (165,850) 1 (165,850) 1 13,910 0.869 12,088 2 13,910 0.756 10,516 3 13,910 0.657 9,139 4 13,910 0.571 7,943 5 13,910 0.497 6,913 NPV (119,252) Project Lima Year Cash Flow PVF PV 0 (176,550) 1 (176,550) 1 18,725 0.869 16,272 2 17,655 0.756 13,347 3 16,585 0.657 10,896 4 12,305 0.571 7,026 5 9,095 0.497 4,520 NPV (124,488) Project Oscar Year Cash Flow PVF PV 0 (208,650) 1 (208,650) 1 29,425 0.869 25,570 2 24,075 0.756 18,201 3 23,005 0.657 15,114 4 14,445 0.571 8,248 5 13,375 0.497 6,647 NPV (134,869)Related Questions
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