Problem 24-1A (part level submission) (a) Problem 24-1A (part level submission)

Question

Problem 24-1A (part level submission)

(a)

Problem 24-1A (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 $165,850 $176,550 $196,950 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.)

Click here to view the factor table.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Explanation / Answer

Solution.

CALCULATION OF PBP.

PBP period of all three project is above 5 Year.

Cash Flow Comulative Cash Inflow Year Project Kilo    Project Lima Project Oscar Project Kilo    Project Lima Project Oscar 0        (165,180.00) (176,550.00)         (196,950.00) 1             13,910.00        18,725.00             29,425.00         13,910.00              18,725.00       29,425.00 2             13,910.00        17,655.00             24,075.00         27,820.00              36,380.00       53,500.00 3             13,910.00        16,585.00             23,005.00         41,730.00              52,965.00       76,505.00 4             13,910.00        12,305.00             14,445.00         55,640.00              65,270.00       90,950.00 5             13,910.00          9,095.00             13,375.00         69,550.00              74,365.00    104,325.00

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