Problem 12-1A (Part Level Submission) Henkel Company is considering three long-t
ID: 2496958 • 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. Project Kilo Project Lima Project Oscar Capital investment $167,400 $178,200 $212,550 Annual net income: Year 1 14,040 18,900 29,700 2 14,040 17,820 24,300 3 14,040 16,740 23,220 4 14,040 12,420 14,580 5 14,040 9,180 13,500 Total $70,200 $75,060 $105,300 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)
(b) Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round Discount Factor to 5 decimal places.)
Net present value $ $ $
Project Kilo:
Project Lima:
Project Oscar:
Explanation / Answer
KILO Calculation of NPV:- Initial Investment $ 1,67,400.00 Year Net Income Dep (Cash outflow)/Inflow PVAF @15% Present value 0 0 0 $ (1,67,400.00) 1 $ (1,67,400.00) 1 14040 $ 33,480.00 $ 47,520.00 0.8696 $ 41,323.39 2 14040 $ 33,480.00 $ 47,520.00 0.7561 $ 35,929.87 3 14040 $ 33,480.00 $ 47,520.00 0.6575 $ 31,244.40 4 14040 $ 33,480.00 $ 47,520.00 0.5718 $ 27,171.94 5 14040 $ 33,480.00 $ 47,520.00 0.4972 $ 23,626.94 $ 70,200.00 NPV $ (8,103.46) ** Cash flows has to be discounted at Required rate of return LIMA Calculation of NPV:- Initial Investment $ 1,78,200.00 Year Net Income Dep (Cash outflow)/Inflow PVAF @15% Present value 0 0 0 $ (1,78,200.00) 1 $ (1,78,200.00) 1 18900 $ 35,640.00 $ 54,540.00 0.8696 $ 47,427.98 2 17820 $ 35,640.00 $ 53,460.00 0.7561 $ 40,421.11 3 16740 $ 35,640.00 $ 52,380.00 0.6575 $ 34,439.85 4 12420 $ 35,640.00 $ 48,060.00 0.5718 $ 27,480.71 5 9180 $ 35,640.00 $ 44,820.00 0.4972 $ 22,284.50 $ 75,060.00 NPV $ (6,145.85) ** Cash flows has to be discounted at Required rate of return OSCAR Calculation of NPV:- Initial Investment $ 2,12,550.00 Year Net Income Dep (Cash outflow)/Inflow PVAF @15% Present value 0 0 0 $ (2,12,550.00) 1 $ (2,12,550.00) 1 29700 $ 42,510.00 $ 72,210.00 0.8696 $ 62,793.82 2 24300 $ 42,510.00 $ 66,810.00 0.7561 $ 50,515.04 3 23220 $ 42,510.00 $ 65,730.00 0.6575 $ 43,217.48 4 14580 $ 42,510.00 $ 57,090.00 0.5718 $ 32,644.06 5 13500 $ 42,510.00 $ 56,010.00 0.4972 $ 27,848.17 $ 1,05,300.00 NPV $ 4,468.57 ** Cash flows has to be discounted at Required rate of return