Please help me on this home work Problem 26-5A (Part Level Submission) Henkel Co
ID: 2483062 • Letter: P
Question
Please help me on this home work
Problem 26-5A (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 Project Kilo $149,800 Project Lima $165,400 Project Oscar $200,500 Capital investment Annual net income 13,812 13,812 13,812 13,812 13,812 $69,060 18,040 17,350 16,230 11,990 8,922 $72,532 27,029 22,960 20,920 13,122 12,080 $96,111 Year 1 2 4 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.)Explanation / Answer
Payback for Kilo
= $149800 / $43772 per year = 3.42 years
Pay back for Lima
= 3 + (165400- 156450) / 45070 = 3.2 years
Pay back period for Oscar
= 3 + (200500 - 191209 ) / 53222 = 3.17 years
Annual rate of return = Average net profit / Average investment
There is no salvage value for the investment made by all of the projects.
ARR for Kilo
= 13812 / [(149800+0)/2] = 18.44%
ARR for Lima
Average net income = $72532/5 = $14506.40
ARR = $14506.40 / [(165400+0)/2] = 17.54%
ARR for CLAYTON
Average income = $96111/5 = $19222.20 per year
ARR = $19222.20 / [(200500+0)/2] = 19.17%
Project Oscar is recommended
Particulars Project Kilo project Lima project Oscar Annual Net income depreciation Net cash flow Cumulative cash flow PV factor @15% PV of cash flows Annual Net income depreciation Net cash flow Cumulative cash flow PV factor @15% PV of cash flows Annual Net income depreciation Net cash flow Cumulative cash flow PV factor @15% PV of cash flows Capital Investment -149800 -165400 -200500 1 13812 29960 43772 49220 0.87 38081.64 18040 33080 51120 56710 0.87 44474.4 27029 40100 67129 67129 0.87 58402.23 2 13812 29960 43772 92992 0.756 33091.63 17350 33080 50430 107140 0.756 38125.08 22960 40100 63060 130189 0.756 47673.36 3 13812 29960 43772 136764 0.658 28801.98 16230 33080 49310 156450 0.658 32445.98 20920 40100 61020 191209 0.658 40151.16 4 13812 29960 43772 180536 0.572 25037.58 11990 33080 45070 201520 0.572 25780.04 13122 40100 53222 244431 0.572 30442.98 5 13812 29960 43772 224308 0.497 21754.68 8922 33080 42002 243522 0.497 20874.99 12080 40100 52180 296611 0.497 25933.46 Total & NPV 69060 218860 -3032 72532 237932 -3700 96111 296611 2103