Problem 12-1A (Part Level Submission) Henkel Company is considering three long-t
ID: 2497673 • 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)
(c)
Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50.)
Project Kilo Project Lima Project Oscar Annual rate of return % % %Explanation / Answer
Henkel Company Particulars 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 Year 2 $14,040 $17,820 $24,300 Year 3 $14,040 $16,740 $23,220 Year 4 $14,040 $12,420 $14,580 Year 5 $14,040 $9,180 $13,500 $70,200 $75,060 $105,300 Average Annual Net Income $14,040 $15,012 $21,060 Depreciation Amount (1/5th of Capital Investment) $33,480 $35,640 $42,510 Annual Rate of Return ( Average Annual Net Income / Capital Investment)*100 8.39% 8.42% 9.91%