Problem 24-1A Henkel Company is considering three long-term capital investment p

Question

Problem 24-1A 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. Capital investment Annual net income: $159,650 $169,950 $210,600 Year 1 13,390 13,390 13,390 13,390 13,390 $66,950 18,025 16,995 15,965 11,845 8,755 $71,585 28,325 23,175 22,145 13,905 12,875 5100,425 Total 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) Your answer is incorrect. Try again. Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50.) Annual rate of return 8.39 8.42 9.54

Explanation / Answer

Calculation

Project Kilo = ($13390/$159650/2)*100 = 16.77%

Project Lima = Average Income = ($71585/5) = $

($14317/169950/2)*100 = 16.85%

Project Oscar = Average Income = ($100425/5) = $20085

($20085/$210600/2)*100 = 19.07%

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