Henkel Company is considering three long-term capital investment proposals. Each
ID: 2468983 • Letter: H
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.
Project Kilo
Project Lima
Project Oscar
Capital investment
$162,750
$173,250
$212,550
Annual net income:
Year
1
13,650
18,375
28,875
2
13,650
17,325
23,625
3
13,650
16,275
22,575
4
13,650
12,075
14,175
5
13,650
8,925
13,125
Total
$68,250
$72,975
$102,375
Compute Cash Payback Period for each Project
Project Kilo
Project Lima
Project Oscar
Capital investment
$162,750
$173,250
$212,550
Annual net income:
Year
1
13,650
18,375
28,875
2
13,650
17,325
23,625
3
13,650
16,275
22,575
4
13,650
12,075
14,175
5
13,650
8,925
13,125
Total
$68,250
$72,975
$102,375
Explanation / Answer
PBP Kilo Lima Oscar Time Amount Cumulative Amount Cumulative Amount Cumulative - (162,750.00) (162,750.00) (173,250.00) (173,250.00) (212,550.00) (212,550.00) 1.00 46,200.00 (116,550.00) 53,025.00 (120,225.00) 71,385.00 (141,165.00) 2.00 46,200.00 (70,350.00) 51,975.00 (68,250.00) 66,135.00 (75,030.00) 3.00 46,200.00 (24,150.00) 50,925.00 (17,325.00) 65,085.00 (9,945.00) 4.00 46,200.00 22,050.00 46,725.00 29,400.00 56,685.00 46,740.00 5.00 46,200.00 68,250.00 43,575.00 72,975.00 55,635.00 102,375.00 PBP 3 + 24,150/46,200 3+17,325/46,725 3 + 9,945/56,685 PBP 3.52 years Approx 3.37 Years approx 3.18 years approx Particulars Kilo Lima Oscar investment 162,750.00 173,250.00 212,550.00 Depreciation per Year = Amount/5 32,550.00 34,650.00 42,510.00 Add dep to net income to derive cash flows
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