*(a) Henkel Company is considering three long-term capital investment proposals.
ID: 2476294 • 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 $165,850 $176,550 $208,650 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.) (Refer the below table)
Explanation / Answer
Thus, the pyback period for the K,L,M are 3.522 years,3.37 years and 3.123 years.
KILO LIMA OSCAR Year Cash flow Cumulative Cash flow Cumulative Cash flow Cumulative 1 47080 47080 54035 54035 71155 71155 2 47080 94160 52965 107000 65805 136960 3 47080 141240 51895 158895 64735 201695 4 47080 188320 47615 206510 56175 257870 5 47080 235400 44405 250915 55105 312975 Capital investment 165850 176550 208650 Payback period 24610/47080 17655/47615 6955/56175 0.522727273 3.522 years 0.370786517 3.37 years 0.12380952 3.123 yearsRelated Questions
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