Problem 12-1A (Part Level Submission) Henkel Company is considering three long-t
ID: 2497680 • 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.)
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Amount (in $) Year Project Kilo Project Lima Project Oscar 0 -1,67,400.00 -1,78,200.00 -2,12,550.00 1 14,040.00 18,900.00 29,700.00 2 14,040.00 17,820.00 24,300.00 3 14,040.00 16,740.00 23,220.00 4 14,040.00 12,420.00 14,580.00 5 14,040.00 9,180.00 13,500.00 Total Cash Inflow 70,200.00 75,060.00 1,05,300.00 IRR -23% -25% -22% Project Kilo Year 0 1 2 3 4 5 Cash Outflow -1,67,400.00 0 0 0 0 0 Cash Inflow 0 14,040.00 14,040.00 14,040.00 14,040.00 14,040.00 Less: Depreciation 0 33480.00 33480.00 33480.00 33480.00 33480.00 Accounting Income -19,440.00 -19,440.00 -19,440.00 -19,440.00 -19,440.00 A.R.R 11.61% Project Lima Year 0 1 2 3 4 5 Cash Outflow -1,78,200.00 0 0 0 0 0 Cash Inflow 0 18,900.00 17,820.00 16,740.00 12,420.00 9,180.00 Less: Depreciation 0 35640.00 35640.00 35640.00 35640.00 35640.00 Accounting Income -16,740.00 -17,820.00 -18,900.00 -23,220.00 -26,460.00 A.R.R 11.58% Project Oscar Year 0 1 2 3 4 5 Cash Outflow -2,12,550.00 0 0 0 0 0 Cash Inflow 0 29,700.00 24,300.00 23,220.00 14,580.00 13,500.00 Less: Depreciation 0 42510.00 42510.00 42510.00 42510.00 42510.00 Accounting Income -12,810.00 -18,210.00 -19,290.00 -27,930.00 -29,010.00 A.R.R 10.09%