Problem 26-5A (Part Level Submission) Henkel Company is considering three long-t
ID: 2483407 • Letter: P
Question
Problem 26-5A (Part Level Submission)
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
(c)
Compute the annual rate of return for each project. (Round answers to 1 decimal place, e.g. 23.7%.)
Annual rate of return
(d)
Project
Cash Payback
Net
Present Value
Annual
Rate of Return
Project Kilo
Project Lima
Project Oscar
Capital investment $149,500 $164,900 $200,200 Annual net income: Year 1 13,876 17,930 26,949 2 13,876 17,010 22,890 3 13,876 16,120 20,940 4 13,876 11,850 13,167 5 13,876 9,173 11,890 Total $69,380 $ 72,083 $95,836Explanation / Answer
Depreciation:
Kilo = $149,500/5=$29,900
Lima=$164,900/5=$32,980
Oscar= $200,200/5=$40,040
Cash flow of Kilo = $13,786+29,900=$43,686
Cash Pay back period= $149,500/43,686=3.42 years
Lima
Year
Cash flow
Depreciation
Total Cashflow
cumulative cash flow
0
-164,900
-164,900
1
17,930
32,980
50,910
-113,990
2
17,010
32,980
49,990
-64,000
3
16,120
32,980
49,100
-14,900
4
11,850
32,980
44,830
29,930
5
9,173
32,980
42,153
72,083
Payback Period= 3+14,900/44,830
=3+0.33 years
=3.33 years
Oscar
Year
Cash flow
Depreciation
Total Cashflow
cumulative cash flow
0
-200,200
-200,200
1
26,949
40,040
66,989
-133,211
2
22,890
40,040
62,930
-70,281
3
20,940
40,040
60,980
-9,301
4
13,167
40,040
53,207
43,906
5
11,890
40,040
51,930
95,836
Payback Period= 3+9,301/53,207
=3+0.17 years
=3.17 years
Kilo
Year
Cash flow
Depreciation
Total Cashflow
PV Factor @ 15%
PV
0
-149,500
-149,500
1
(149,500)
1
13,876
29,900
43,776
0.8696
38,066
2
13,876
29,900
43,776
0.7561
33,101
3
13,876
29,900
43,776
0.6575
28,783
4
13,876
29,900
43,776
0.5718
25,029
5
13,876
29,900
43,776
0.4972
21,764
NPV
(2,756)
Lima
Year
Cash flow
Depreciation
Total Cashflow
PV Factor @ 15%
PV
0
-164,900
-164,900
1
(164,900)
1
17,930
32,980
50,910
0.8696
44,270
2
17,010
32,980
49,990
0.7561
37,800
3
16,120
32,980
49,100
0.6575
32,284
4
11,850
32,980
44,830
0.5718
25,632
5
9,173
32,980
42,153
0.4972
20,957
NPV
(3,958)
Oscar
Year
Cash flow
Depreciation
Total Cashflow
PV Factor @ 15%
PV
0
-200,200
-200,200
1
(200,200)
1
26,949
40,040
66,989
0.8696
58,251
2
22,890
40,040
62,930
0.7561
47,584
3
20,940
40,040
60,980
0.6575
40,095
4
13,167
40,040
53,207
0.5718
30,421
5
11,890
40,040
51,930
0.4972
25,818
NPV
1,970
C.
Kilo :
Average Return= 69,380/=$13,876
Annual return =$13,876/[(140,500+0)/2]
=$13,876/70,250
=0.1975
=19.75%
Lima:
Average Return= 72,083/5=$14,416.6
Annual return =$14,416.6/[(164,900+0)/2]=
=$14,416.6/82,450
=0.1748
=17.48%
Oscar:
Average Return= 95,836/5=$19,167.2
Annual return =$19,167.2/[(200,200+0)/2]=
=$19,167.2/100,100
=0.1915
=19.15%
Project
Cash back
NPV
Annual Return
Kilo
3
2
1
Lima
2
3
3
Oscar
1
1
2
Project recommended is is Oscar as per NPV which is more relavant
Lima
Year
Cash flow
Depreciation
Total Cashflow
cumulative cash flow
0
-164,900
-164,900
1
17,930
32,980
50,910
-113,990
2
17,010
32,980
49,990
-64,000
3
16,120
32,980
49,100
-14,900
4
11,850
32,980
44,830
29,930
5
9,173
32,980
42,153
72,083
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.