Henkel Company is considering three long-term capital investment proposals. Each

Question

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.

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)

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

Please find the net present value.

Project Kilo Project Lima Project Oscar Capital investment $150,000 $165,000 $200,000 Annual net income:     Year 1 14,000 18,000 27,000 2 14,000 17,000 23,000 3 14,000 16,000 21,000 4 14,000 12,000 13,000 5 14,000 9,000 12,000 Total $70,000 $72,000 $96,000 TABLE 3 Present Value of 1 Periods 4% 500 6% 8% 9% 10% 11% 12% 15% 96154 .95238 .94340 0.93458 92593 .91743 .90909 90090 .89286 86957 92456 90703 .89000 0.87344 .85734 84168 82645 81162 .79719 .75614 88900 86384 .83962 0.81630 .79383 .77218 .75132 .73119 .71178 65752 2 4 .85480 82270 .79209 0.76290 .73503 70843 82193 .79031 .74622 .75992 .73069 .70259 64461 6755661391 64958 58468 .52679 0.4750942888 .68301 65873 .63552 57175 49718 43233 37594 32690 -28426 78353 74726 0.71299 .70496 0.6663463017.59627 56447 66506 0.62275 58349 54703.51316 48166 45235 62741 0.58201 .59190 0.54393 .50025 46043 .55839 0.50835 46319 42241 38554 35218 32197 .24719 68058 64993 62092 59345 56743 53464 50663 40388 39092 36061 71068 67684 4665143393 42410 54027.50187 4665 10 38753 .35049 .31728 2874821494 6246055684.49697 0.44401 39711 35554 31863 28584 25668 18691 46884 0.41496 .44230 0.38782 41727 0.36245 39365 0.33873 37136 0.31657 .27027 23107 28966 26333 27454 .23939 25751 .22917 .16 23199 20462 20900 .18270 18829 16312 16963 15282 13004 13768 11611 12403 36770 32618 60057 53032 57748 55526 48102 53391 51337 43630 49363 47464.39573 33051 0.27615 23171 .19449 45639 37689 .31180 0.25842 21455 .17843 6253 14133 12289 10687 14564 .09293 08081 07027 06110 50507 34046 29925 31524 45811 29189 25187 2176 19785 41552 .35034 0.29586 25025 . 21199 .17986 .15282 .13 16351 14864 20 10367

Explanation / Answer

1 2 3 Present value factors@15% 4 Present Value Cash flows Project Kilo Project Lima Project Oscar Project Kilo (1*4) Project Lima (2*4) Project Oscar (3*4) Capital investment $150,000 $165,000 $200,000 1 $150,000 $165,000 $200,000 Annual net income:     Year 1 14,000 18,000 27,000 0.869565217 $12,174 $15,652 $23,478 2 14,000 17,000 23,000 0.756143667 $10,586 $12,854 $17,391 3 14,000 16,000 21,000 0.657516232 $9,205 $10,520 $13,808 4 14,000 12,000 13,000 0.571753246 $8,005 $6,861 $7,433 5 14,000 9,000 12,000 0.497176735 $6,960 $4,475 $5,966 Total $70,000 $72,000 $96,000 PV of Cash flows $46,930 $50,363 $68,076 No given projects are able to collect their investment in given life of the investments. However to collect the invested amount each project shall work in number of years as mentined below Project Kilo Project Lima Project Oscar Cash PayBack Period = (Capital/PV of Cash flows)*5 Years 16 Years 16.40 Years 15.85 Yaers NPV (Capital Investment-PV of Cash flows) $103,070 $114,637 $131,924

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