Question
P12-1A – Compute annual rate of return, cash payback, and net present value

Managerial Accounting, 6th Edition, by Weygandt, Kieso, and Kimmel

Primer on Using Microsoft Excel in Accounting by Rex A Schildhouse

Problem P12-1A 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

Capital investment:

$150,000

Salvage value:

$0

Annual net income:

Year:

1

14,000

2

14,000

3

14,000

4

14,000

5

14,000

Total:

$70,000

Project Lima

$165,000

$0

Project Oscar

$200,000

$0

18,000

17,000

16,000

12,000

9,000

$72,000

27,000

23,000

21,000

13,000

12,000

$96,000

Depreciation is computed by the straight-line method with no salvage value. The company’s cost of capital is:

(Assume that cash flows occur evenly throughout the year.)

15%

Instructions:

(a) Compute the cash payback period for each project. (Round to two decimals.)

Project Kilo

Depreciation per year = Area for formula

Cash payback period = Area for formula

Project Lima

Depreciation =

Project Oscar

Depreciation =

Area for formula

Year

1

2

3

4

5

Annual

Cumulative

Depreciation

Cash

Cash

Value:

Inflow:

Inflow:

Amount

Amount

Formula

Amount

Amount

Formula

Amount

Amount

Formula

Amount

Amount

Formula

Amount

Amount

Formula

Area for formula

Area for formula

Area for formula

Area for formula

Year

1

2

3

4

5

Area for formula

Area for formula

Area for formula

Annual

Depreciation

Cash

Value:

Inflow:

Amount

Amount

Amount

Amount

Amount

Amount

Amount

Amount

Amount

Amount

Cumulative

Cash

Inflow:

Formula

Formula

Formula

Formula

Formula

Name: Solution

Course:

Date:

(b) Compute the net present value for each project. (Round to nearest dollar.)

Year

1

2

3

4

5

Total

Discount

Factor

Project Kilo

Cash

Inflow

PV

Formula

Formula

Formula

Formula

Formula

Amount

Amount

Amount

Amount

Amount

Formula

Capital investment:

Positive (negative) net present value:

Project Lima

Cash

Inflow

PV

Formula

Formula

Formula

Formula

Formula

Formula

Amount

Formula

Amount

Amount

Amount

Amount

Amount

Formula

Formula

Formula

Formula

Formula

Formula

Formula

Amount

Formula

Project Oscar

Cash

Inflow

PV

Amount

Amount

Amount

Amount

Amount

Formula

Formula

Formula

Formula

Formula

Formula

Formula

Amount

Formula

(c) Compute the annual rate of return for each project. (Round to two decimals.) (Hint: Use average annual net income in your

computation.)

Project Kilo Formula or percentage as desired.

Project Lima Formula or percentage as desired.

Project Oscar Formula or percentage as desired.

(d) Rank the projects on each of the foregoing bases. Which project would you recommend?

Project

Project Kilo

Project Lima

Project Oscar

Enter your text answer here.

Cash Payback

Number

Number

Number

Net

Present

Value

Number

Number

Number

Annual

Rate of

Return

Number

Number

Number