(a) Henkel Company is considering three long-term capital investment proposals.
ID: 2490533 • 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 $164,300 $174,900 $210,600 Annual net income: Year 1 13,780 18,550 29,150 2 13,780 17,490 23,850 3 13,780 16,430 22,790 4 13,780 12,190 14,310 5 13,780 9,010 13,250 Total $68,900 $73,670 $103,350
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.)
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(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
Statement of cummulative net cash inflow Project Kilo Project Lima Project Oscar year Annual Net Cash Inflow cumm net cash inflow Annual Net Cash Inflow cumm net cash inflow Annual Net Cash Inflow cumm net cash inflow 1 $46,640.00 $46,640.00 $53,530.00 $53,530.00 $63,270.00 $63,270.00 2 $46,640.00 $93,280.00 $52,470.00 $106,000.00 $65,970.00 $129,240.00 3 $46,640.00 $139,920.00 $51,410.00 $157,410.00 $64,910.00 $194,150.00 4 $46,640.00 $186,560.00 $47,170.00 $204,580.00 $56,430.00 $250,580.00 5 $46,640.00 $233,200.00 $43,990.00 $248,570.00 $55,370.00 $305,950.00 $233,200.00 $248,570.00 $305,950.00 Calculation Of payback period Project Kilo 3 years 164300-139920/46640 0.52 3.52 years Project Lima 3 years 174900-157410/47170 0.37 3.37 years Project oscar 3 years 210600-194150/56430 0.29 3.29 years
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