Henkel Company is considering three long-term capital investment proposals. Each

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 $168,950 $179,850 $206,700 Annual net income: Year 1 14,170 19,075 29,975 2 14,170 17,985 24,525 3 14,170 16,895 23,435 4 14,170 12,535 14,715 5 14,170 9,265 13,625 Total $70,850 $75,755 $106,275 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.) WHAT IS THE CASH PAYBACK PERIOD FOR THE THREE PROJECTS??

Explanation / Answer

Project Kilo Project Lima Project Oscar Capital investment ($168,950) ($179,850) ($206,700) Annual net income:     Year 1 14,170 19,075 29,975 2 14,170 17,985 24,525 3 14,170 16,895 23,435 4 14,170 12,535 14,715 5 14,170 9,265 13,625 payback period NA NA NA

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