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Xc Data table Gaynor Manufacturing, Inc. has a manufacturing machine that needs attention (Click the icon to view additional information.) Gaynor expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gaynor uses straight-line depreciation and requires an annual retum of 14%. (Click the icon to view Prusent Value ( Click the icon to view Present Value ( (Click the loon to view Future Value o (Click the icon to view Future Value o Year Read the requirements. Year 1 Year 2 Year 3 Year 4 Year 5 Refurbish Current Purchase New Machine Machine $ 1,940,000 $ 3,270,000 350,000 420,000 300,000 370.000 250,000 320,000 Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. Compute the payback for both options. Begin by completing the payback schedule for Option 1 (refurbish). 270,000 Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated More info Year 6 Year 7 Year 8 200,000 200,000 200,000 200,000 270,000 270,000 0 $ 2,600,000 1 Year 9 270,000 270.000 270,000 The company is considering two options. Option 1 is to refurtish the current machine at a cost of S2,600,000. If refurbished, Gaynor expects the machine to last another eight years and then have no residual value. Option 2 is to replace the machine at a cost of $4,000,000. A new machine would last 10 years and have no residual value. 2 2 Year 10 3 $ $ 3,640,000 $ 6,000,000 4 Total 5 6 7 ( Print Done Print Done 8 (Round your answer to one decimal place.) The payback for Option 1 (refurbish current machine) is years. Year 2 Now complete the payback schedule for Option 2 (purchase). Year 3 370,000 Net Cash Outflows Net Cash Inflows Requirements Year 4 Year Amount Invested Annual Accumulated 320,000 270,000 Year 5 0 $ 4,000,000 300,000 250,000 200,000 200,000 200,000 200,000 Year 6 270,000 1 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. Which option should Gaynor choose? Why? 2 2. Year 7 Year 8 Year 9 3 270,000 270,000 270,000 270,000 4 Year 10 5 $ 3,640,000 $ 6,000,000 6 Print Done Total 7 8 9 Print Done 10 (Round your answer to one decimal place.) The payback for Option 2 (purchase new machine) is years. Compute the NPV for each of the options. Begin with Option 1 (refurbish). (Enter the factors to three decimal places. X.XXX. Use parentheses or a minus sign for a negative net present value.) Net Cash PV Factor Present Years Inflow (i = 14%) Value 1 2 3 Present value of each year's inflow: (n = 1) (n = 2) (n = 3) (n = 4) (n = 5) (n = 6) (n = 7) 4 5 LC 6 7 8 (n = 8) Total PV of cash inflows 0 Initial investment Net present value of the project Now compute the NPV for Option 2 (purchase). (Enter the factors to three decimal places. X.XXX. Use parentheses or a minus sign for a negative net present value.) (Click the icon to view Present Value of $1 table.) Gaynor Manufacturing, Inc. has a manufacturing machine that needs attention. Click the icon to view additional information.) Gaynor expects the following net cash inflows from the two options: B (Click the icon to view the net cash flows.) Gaynor uses straight-line depreciation and requires an annual return of 14%. (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of S1 table.) 3 Read the requirements Now compute the NPV for Option 2 (purchase), (Enter the factors to three decimal places. X.XXX, Use parentheses or a minus sign for a negative net present value.) Net Cash PV Factor Present Value Years Inflow (1 -14%) Present value of each year's inflow: (n = 1) 1 2 (n=2) 3 (n = 3) In = 4) 4 5 (n = 5) 6 (n = 6) (n = 7) 7 8 (n = 8) in = 9) 9 10 (n = 10) Total PV of cash inflows 0 Initial Investment Finally, compute the profitability index for each option. (Round to two decimal places X.XX.) = Profitability index Refurbish = II II Purchase Requirement 2. Which option should Gaynor choose? Why? Review your answers in Requirement 1. Gaynor should choose because this option has a payback period, an ARR that is the other option, a NPV, and its profitability index is