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 $156,550 $166,650 $208,650

Annual net income:

Year 1 13,130 17,675 27,775

2 13,130 16,665 22,725

3 13,130 15,655 21,715

4 13,130 11,615 13,635

5 13,130 8,585 12,625

Total $65,650 $70,195 $98,475

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)

TABLE 3 PRESENT VALUE OF 1

TABLE 4 PRESENT VALUE OF AN ANNUITY OF 1

Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)

Project Kilo years

Project Lima years

Project Oscar years

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.)

Project Kilo Project Lima Project Oscar

Net present value $ $ $

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 % % %

Rank the projects on each of the foregoing bases. Which project do you recommend?

Project Cash Payback Net

Present Value Annual

Rate of Return

Kilo

Lima

Oscar

The best project is

Oscar? Kilo? or Lima?