Alton Manufacturing, Inc. has a manufacturing machine that needs attention. The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,200,000. If refurbished, Alton expects the machine to last another 8 years and then have no residual value. Option 2 is to replace the machine at a cost of $3,200,000. A new machine would last 10 years and have no residual value. Alton expects the following net cash inflows from the two options: Year Refurbish Current Purchase New Machine Machine 2.080.000 $ 2,160,000 1 2 250,000 410,000 3 200.000 360,000 150,000 310,000 4 5 100.000 260,000 6 100,000 260,000 7 100.000 260,000 100.000 8 260,000 9 260,000 260.000 10 3,080,000 $ 4.800.000 Total Alton uses straight-line depreciation and requires an annual return of 12 %. Present Value of $1 18% Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 20% 0.833 0.990 0.980 0.971 0.962 0.926 0.909 0.893 0.952 0.943 0.935 0.917 0.877 0.870 0.862 0.847 0.961 0.943 0.842 0.769 2 0.980 0.925 0.907 0.890 0.873 0.857 0.826 0.797 0.756 0.743 0.718 0.694 0.889 0.840 0.772 3 0971 0.942 0.915 0.864 0.816 0794 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.961 0.924 0.888 0.855 0.735 0.708 0.683 0.592 0.572 0.552 4 0.823 0.792 0.763 0.636 0.516 0.482 0.906 0.681 5 0.951 0.863 0.822 0.784 0.747 0713 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.837 6 0.942 0.888 0.790 0746 0705 0.666 0.630 0.596 0.564 0507 0.456 0.432 0.410 0,370 0335 0.400 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.547 0.376 7 0.623 0.513 0.452 0.354 0.314 0.279 0.923 0.853 0.789 0.731 0677 0,627 0582 0540 0.502 0.467 0.404 0.351 0.327 0.305 0266 0.233 0.544 0.914 0.837 0.766 0.703 0.645 0.592 0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.820 0.558 10 0.905 0.744 0.676 0614 0.508 0.463 0.422 0.386 0.322 0270 0.247 0.227 0.191 0.162 0.896 0.722 0,650 0.527 0.215 11 0.804 0.585 0.475 0.429 0.388 0.350 0.287 0237 0.195 0.162 0.135 0.887 0.701 0.397 0.257 0.208 0.187 0.168 0.137 0.112 12 0.788 0.625 0.557 0.497 0.444 0.356 0.319 0.773 0.182 13 0.879 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.229 0.163 0.145 0.116 0.093 co Present Value of Annuity of $1 4 % Periods 20% 1% 2% 3% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 0877 0.833 1 0.990 0.980 0.971 0.962 0.952 0.943 0,935 0.926 0.917 0.909 0893 0.870 0.862 0847 1,783 1.626 2 1.970 1942 1.913 1886 1.859 1.833 1.808 1.759 1736 1.690 1.647 1.605 1566 1.528 2.577 2.174 2.106 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.531 2.487 2.402 2.322 2.283 2.246 3.717 4 3.902 3.808 3.630 3.546 3465 3.387 3.312 3.240 3.170 3.037 2914 2.855 2.798 2.690 2.589 3.605 3.127 2.991 5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.433 3.352 3.274 5417 4.767 4.355 3.326 6 5.795 5.601 5.242 5.076 4.917 4.623 4.486 4.111 3.889 3.784 3.685 3.498 6.728 6472 6.002 5.582 5.206 3812 3.605 6.230 5.786 5.389 5.033 4.868 4.564 4.288 4.160 4.039 7.020 5.971 3.837 8 7.652 7.325 6.733 6.463 6.210 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.772 4.607 4.303 4.031 7.722 7.360 6.418 6.145 5.650 9.471 8.111 5.216 10 8.983 8.530 7.024 6.710 5.019 4.833 4.494 4.192 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.234 5.029 4.656 4.327 11.255 10.575 9.954 12.134 11.348 10.635 9.986 9.394 8.863 7.161 6.814 5.197 12 9.385 8.384 7.943 7,536 6.194 5.660 5.421 4.793 4.439 7.103 6.424 13 8.853 8.358 7.904 7.487 5.842 5.583 5.342 4910 4.533 12.106 11296 5.008 14 13.004 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.724 5.468 4.611 13.865 12.849 11.938 9.712 9.108 6811 5847 15 11.118 10.380 8.559 8.061 7.606 6.142 5.575 5.092 4.675 Requirements 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. 2. Which option should Alton choose? Why? 496 LO