Problem 12-1A (Part Level Submission) Henkel Company is considering three long-t
ID: 2452578 • Letter: P
Question
Problem 12-1A (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.
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)
Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)
Project Kilo Project Lima Project Oscar Capital investment $170,500 $181,500 $196,950 Annual net income: Year 1 14,300 19,250 30,250 2 14,300 18,150 24,750 3 14,300 17,050 23,650 4 14,300 12,650 14,850 5 14,300 9,350 13,750 Total $71,500 $76,450 $107,250Explanation / Answer
Project Kilo Capital investment 170,500 Year Net income Depreciation Total cashflow Cumulative cashflow 1 14,300 34,100 48,400 48,400 2 14,300 34,100 48,400 96,800 3 14,300 34,100 48,400 145,200 4 14,300 34,100 48,400 193,600 3.52 Years 5 14,300 34,100 48,400 242,000 Total 71,500 170,500 242,000 Project Lima Capital investment 181,500 Year Net income Depreciation Total cashflow Cumulative cashflow 1 19,250 36,300 55,550 55,550 2 18,150 36,300 54,450 110,000 3 17,050 36,300 53,350 163,350 4 12,650 36,300 48,950 212,300 3.37 Years 5 9,350 36,300 45,650 257,950 Total 76,450 181,500 257,950 Project Oscar Capital investment 196,950 Year Net income Depreciation Total cashflow Cumulative cashflow 1 30,250 39,390 69,640 69,640 2 24,750 39,390 64,140 133,780 3 23,650 39,390 63,040 196,820 4 14,850 39,390 54,240 251,060 3.002 Years 5 13,750 39,390 53,140 304,200 Total 107,250 196,950 304,200