Problem 12-1A (Part Level Submission) Henkel Company is considering three long-t
ID: 2497635 • 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.)
Your answer is partially correct. Try again.Explanation / Answer
Depreciation is a non-cash outflow. It is computed only to calculate the tax savings on account of depreciation. In absence of tax rate, depreciation on capital investment shall be ignored.
Calculation of net present value can be tabulated as below:
Year
Present value factor @ 15%
Project Kilo
Project Lima
Project Oscar
Cash flow
Present value of cash flow
Cash flow
Present value of cash flow
Cash flow
Present value of cash flow
0
1.00000
-$167,400
-$167,400
-$178,200
-$178,200
-$212,550
-$212,550
1
0.86957
$14,040
$12,209
$18,900
$16,435
$29,700
$25,826
2
0.75615
$14,040
$10,616
$17,820
$13,475
$24,300
$18,374
3
0.65752
$14,040
$9,232
$16,740
$11,007
$23,220
$15,268
4
0.57176
$14,040
$8,028
$12,420
$7,101
$14,580
$8,336
5
0.49718
$14,040
$6,980
$9,180
$4,564
$13,500
$6,712
Net Present value
-$120,335
-$125,618
-$138,034
Year
Present value factor @ 15%
Project Kilo
Project Lima
Project Oscar
Cash flow
Present value of cash flow
Cash flow
Present value of cash flow
Cash flow
Present value of cash flow
0
1.00000
-$167,400
-$167,400
-$178,200
-$178,200
-$212,550
-$212,550
1
0.86957
$14,040
$12,209
$18,900
$16,435
$29,700
$25,826
2
0.75615
$14,040
$10,616
$17,820
$13,475
$24,300
$18,374
3
0.65752
$14,040
$9,232
$16,740
$11,007
$23,220
$15,268
4
0.57176
$14,040
$8,028
$12,420
$7,101
$14,580
$8,336
5
0.49718
$14,040
$6,980
$9,180
$4,564
$13,500
$6,712
Net Present value
-$120,335
-$125,618
-$138,034