My question is about Part B. what would be the net present value for each projec

Question

My question is about Part B. what would be the net present value for each project.

Problem 26-1A (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

Capital investment $167,400 $178,200 $210,600

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)

(a)

Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)

Project Kilo= 3.52 years

Project Lima= 3.37 years

Project oscar=3.12 years

(b)

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). Round Discount Factor to 5 decimal places.)

Your answer is correct.

Explanation / Answer

Solution:

Project Kilo 0 1 2 3 4 5 Initial Outlay -167,400 Cash inflow 14,040 14,040 14,040 14,040 14,040 PVIF @ 15%                    0.870                    0.756                   0.658              0.572              0.497 Present value of cash inflows           12,208.70           10,616.26             9,231.53        8,027.42        6,980.36 Total present value of cash inflows 47,064.26 NPV = Totap present value of cash inflows - Initial Outlay -            120,335.74 Project Lima 0 1 2 3 4 5 Initial Outlay -178,200 Cash inflow 18,900 17,820 16,740 12,420 9,180 PVIF @ 15%                    0.870                    0.756                   0.658              0.572              0.497 Present value of cash inflows           16,434.78           13,474.48           11,006.82        7,101.18        4,564.08 Total present value of cash inflows                                                                                                                                  52,581.34 NPV = Totap present value of cash inflows - Initial Outlay -      125,618.66 Project Oscar 0 1 2 3 4 5 Initial Outlay -210,600 Cash inflow 29,700 24,300 23,220 14,580 13,500 PVIF @ 15%                    0.870                    0.756                   0.658              0.572              0.497 Present value of cash inflows           25,826.09           18,374.29           15,267.53        8,336.16        6,711.89 Total present value of cash inflows                                                                                                                                  74,515.95 NPV = Totap present value of cash inflows - Initial Outlay -     136,084.05

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