(Click the icon to view Present Value of $1 table.) Gilpin Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Gilpin expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gilpin uses straight-line depreciation and requires an annual return of 16%. OOOO (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 $1 table.) More info Reference The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,600,000. If refurbished, Gilpin 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 $3,800,000. A new machine would last 10 years and have no residual value. Period 1 0.870 0.833 Data table Refurbish Current Machine Year Purchase New Machine Year 1 $ 2,520,000 2,280,000 $ 430,000 Year 2 610,000 500,000 Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 18% 20% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.862 0.847 Period 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.8420.826 0.797 0.769 0.756 0.743 0.718 0.694 Period 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 Period 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 Period 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402 Period 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335 Period 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233 Period 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194 Period 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.322 0.270 0.247 0.227 0.191 0.162 Period 11 0.896 0.8040.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112 Period 13 0.879 0.773 0.681 0.601 0.530 0.4690.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 Period 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078 Period 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065 Period 16 0.853 0.728 0.623 0.534 0.458 0.394 0.3390.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054 Period 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045 Period 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038 Period 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 Period 20 0.820 0.673 0.554 0.456 0.377 0.3120.258 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026 Period 21 0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.003 0.064 0.053 0.044 0.031 Period 22 0.803 0.647 0.522 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018 Period 23 0.795 0.634 0.507 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015 Period 24 0.788 0.622 0.492 0.390 0.310 0.247 0.197 0.158 0.125 0.1020.066 0.043 0.035 0.028 0.019 0.013 4 Year 3 320,000 Year 4 210.000 390.000 6 Year 5 100,000 280,000 Year 6 100.000 280,000 280,000 8 Year 7 100,000 Year 8 100.000 280,000 (Round your answl Year 9 0.022 280.000 280,000 The payback for Year 10 $ Now complete the 3,640,000 $ 5,700,000 Total Net Ca Print Done Print Done Reference Reference Future Value of $1 Periods Period 1 1 Period 2 Period 3 Period 4 Period 5 period 6 Present Value of Ordinary Annuity of $1 Periods 1% 2% 3% % 4% 5% 6 6% 7% 8% 9% 10% 9 12% 14% 15% 16% 18% 21 Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 Period 2 1.970 1.942 1.913 1.886 1.859 1.833 1.8081.783 1.759 1.736 1.6901.647 1.626 1.605 1.566 1. Period 3 2.9412.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.283 2.246 2.174 2. Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.3873.312 3.240 3.170 3.037 2.914 2.855 2.798 2.690 2! Period 5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.352 3.274 3.127 2! Period 6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4355 4.111 3.889 3.784 3.685 3.498 3. 3 Period 7 6.728 6.472 6.230 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.160 4.039 3.812 3. Period 8 7.652 7.3257.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078 3. Period 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 4.3034 Period 10 9.471 8.983 8.530 8.111 7.722 7.360 7.0246.710 6.418 6.145 5.650 5.216 5.019 4.833 4.4944 Period 11 10.368 9.7879.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.234 5.029 4.6564 Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.9437.536 7.1616.814 6.194 5.660 5.421 5.197 5.197 4.793 4.7934 Period 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 5.583 5.3424.910 4. Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 5.724 5.468 5.008 4. Period 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 6.811 6.142 5.847 5.575 5.092 4. Period 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 6.974 6.265 5.954 5.669 5.162 | . Period 17 15.562 14.292 13.166 12.166 11.274 10.4771 9.763 9.122 8.544 3.022 7.120 6.373 6.047 5.749 5.222 Period 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.250 6.4676.128 5.818 5.2734. Period 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.5506.198 5.877 5.316 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.5147.469 6.623 6.259 5.929 5.3534 Period 21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 7.562 6.687 6.312 5.973 5.384 Period 22 19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.2019.442 8.7727.645 6.743 6.3596.0115.410 5.410 4 Period 23 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.5808.8837.718 6.792 6.399 6.044 5.4324 Period 24 21.24318.914 16.936 | 15.247 13.799 12.550 11.469 10.529 9.707 8.9857.784 6.835 6.4346.073 5.451 4! Period 25 22.023 19.523 17.413 15.622 14.09412.783 11.654 10.675 9.8239.077 7.843 6.873 6.464 6.097 5.467 4 Period 26 22.795 20.121 17.877 15.983 14.375 13.003) 11.826 10.8109.929 9.1617.896 6.906 6.491 6 118 5480 5.480 4. Period 27 23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.027 9.237 7.943 6.935 6.514 6.514 6.136 5.4924 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Period 16 Period 17 Period 18 Period 19 Period 20 Period 21 Period 22 Period 23 Period 24 Period 25 Period 26 Period 27 Period 28 Period 29 Period 30 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100 1.120 1.140 1.150 1.020 1.040 1.061 1.0821.103 | 1.124 1.103 1.124 1.145 1.166 1.1881.210 1.254 1.300 1.323 | 1.030 1.061 1.093 1.125 1.1581.191 1.225 1.260 1.295 1.331 1.405 1.482 1.521 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.4121.464 1.574 1.689 1.749 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.762 1.925 | 2011 1.062 1.126 1.1941.265 1.340 1.419 1.501 1.587 1.677 1.772 1.974 2.1952.313 1.072 1.149 1.230 1.316 1,407 1.407 1.504 1.606 1.7141.828 1.949 2.211 2.502 2.660 1.083 1.1721.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.476 2.853 3.059 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2773 3.252 3.518 1.105 1.219 1.344 1.480 1.629 1.480 1.629 1.791 1.967 2.159 2.367 2.594 3.106 3.707 4.046 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.479 4.2264.652 1.127 1.268 1.426 1.601 1.796 2012 2.252 2.518 2.813 3.138 3.896 4.818 5.350 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 4.363 5.492 6.153 1.149 1.319 1.513 1.732 1.980 2.261 25792.937 3.342 3.798 4.887 4.887 6.261 7.076 1.161 1.346 1.558 1.801 1.801 | 2.079 2.3972.759 3.172 3.642 4.177 5.474 7.1388.137 1.173 1.373 1.605 1.873 2.183 2.540 2952 3.426 3.970 4.595 6.130 8.1379.358 1.184 1.400 1.653 1.948 2.2922693 3.159 3.700 4.328 5.054 6.866 9.276 10.76 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 7.690 10.58 12.38 1.208 1.457 1.754 2.107 2.527 3.026 3.6174.316 5.142 6.116 8.613 12.06 1423 1.220 1.486 1.806 2.191 2.653 3.2073.870 4.661 5.604 6.727 9.646 13.74 16.37 1.232 1.516 1.860 2.279 2.786 3.400 4.1415.034 6.1097.400 10.80 15.67 18.82 1.245 1.546 1.916 2.370 2.925 3.604 4.430 5.4376.659 8.140 12.10 17.86 21.64 1.257 1.577 1.9742.465 3.072 3.820 4.741 5.871 7.258 8.954 13.55 20.36 24.89 1.270 1.608 2.033 2.563 3.225 4.049 | 5.0726.341 7.911 9.850 15.18 23.21 28.63 | 1.282 1.6412094 2.666 3.386 4.292 5.427 6.848 8.623 10.83 17.00 26.46 32.92 | 1.295 1.673 2.157 2.772 3.556 4.549 5.8077.396 9.399 11.92 19.04 30.1737.86 1.308 1.707 2.221 2.883 3.733 4.822 6.2147.988 10.25 13.11 21.32 34.39 43.54 1.321 1.741 2.288 2.999 3.920 5.112 6.649 8.627 11.17 14.42 | 23.88 39.20 50.07 1.335 1.776 2.357 3.119 4.1165.418 7.114 9.317 12.17 15.86 26.75 44.69 57.58 1.348 1.811 2.427 3.243 4.322 5.743 7.612 7.612 10.06 13.27 17.45 29.96 50.95 66.21 | .......... --- ---- Inorind in 1400 10 1011 7040 10.00 11 071 2170 1606 02.05 100 12870 Print Done Print Done 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). Reference Net Cash Outflows Net Cash Inflows Year Annual Accumulated Amount Invested $ 2,600,000 12% 0 1 2 3 3 4 Future Value of Ordinary Annuity of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 14% 15% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2010 2.020 2030 2040 2050 2.060 2.070 2.080 2.090 2.100 2.120 2.140 2.150 3.030 3.060 3.091 3.122 3.153 3.184 3.215 3.246 3.278 3.310 3.374 3.440 3.473 4.060 4.122 4.184 4.246 | 4.310 4.375 4.440 4.506 4.573 4.641 4.779 4.921 4.993 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105 6.353 6.610 6.742 6.152 6.308 6.468 6.633 6.8026.9757.153 7.336 7.523 7.716 8.115 8.536 8.754 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.200 9.487 | 10.09 10.73 11.07 8.286 8.583 8.8929.214 9.549 9.897 10.260 10.64 11.03 | 11.44 12.30 | 13.23 13.73 9.369 9.755 10.16 10.58 11.03 11.49 11.98 12.49 13.02 13.58 14.78 16.09 16.79 10.46 10.95 | 11.46 12.01 | 12.58 13.18 13.82 14.49 15.1915.94 17.55 19.34 20.30 11.57 12.17 12.81 | 13.49 14.21 14.97 15.78 16.65 17.56 18.53 20.65 23.04 24.35 12.68 13.41 | 14.19 15.03 15.92 16.87 17.89 18.98 20.14 21.38 24.13 27.27 29.00 13.81 14.68 15.62 16.63 | 17.71 18.88 | 20.14 21.50 22.95 24.52 28.03 32.09 34.35 14.95 | 15.97 17.09 18.29 | 19.60 21.02 22.55 24.21 26.02 27.98 32.39 37.58 40.50 16.10 17.29 18.60 20.02 21.58 | 23.28 25.13 27.15 29.36 | 31.77 37.28 43.84 47.58 5 6 7 8 Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Period 16 Period 17 Period 18 Period 19 Period 20 Period 21 Period 22 Period 23 Period 24 Period 25 Period 26 Period 27 Period 28 Period 29 Period 30 (Round your answer to one decimal place.) The payback for Option 1 (refurbish current machine) is years. Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated 0 $ 3,800,000 17.26 18.64 20.16 21.82 23.66 25.67 27.89 30.32 33.00 35.95 42.75 50.98 55.72 18.43 20.01 21.76 23.70 25.84 28.21 30.84 33.75 36.97 40.54 48.88 59.12 65.08 19.61 21.41 23.41 25.65 28.13 30.91 34.00 37.45 41.30 45.60 55.75 68.39 75.84 20.81 22.84 25.12 27.67 30.54 33.76 37.38 41.45 46.02 51.16 63.44 78.97 88.21 22.02 24 30 26.87 29.78 33.07 36.79 41.00 45.76 51.16 57.28 72.05 91.02 1024 | 23.24 25.78 28.68 31.97 35.72 39.99 44.87 50.42 56.76 64.00 81.70 104.8 118.8 | 24.47 27.30 30.54 34.25 38.51 43.39 49.01 55.46 62.87 71.40 92.50 120.4 137.6 25.72 28.85 32.45 36.62 41.43 47.00 53.4460.89 69.53 79.54 104.6138.3 159.3 26.97 30.42 34.43 39.08 44.50 50.82 58.18 66.76 76.79 | 88.50 118.2 158.7 184.2 28.24 32.03 36.46 41.65 47.73 54.86 63.25 73.11 84.70 98.35 133.3 133.3 181.9 212.8 29.53 33.67 38.55 44.31 51.11 59.16 68.68 79.95 93.32 109.2 1503 208.3 245.7 | 30.82 35.34 40.71 47.08 54.67 63.71 74.48 87.35 102.7 121.1 169.4 238.5 283.6 32.13 37.05 42.93 49.97 58.40 68.53 80.70 95.34 113.0 134.2 190.7 272.9 327.1 33.45 38.79 45.22 52.97 62.32 73.64 87.35 104.0 124.1148.6 214.6 312.1 3772 34.78 40.57 47.58 56.08 66.44 79.06 94.46 113.3 113.3 136.3 136.3 164.5 241.3356.8 434.7 6010 75 10 105.02 1 2 3 4 5 Inario in 10 On 1640 2601 227 0 7671 12.10 1 770 6 7 8 9 10 (Round your answer to one decimal place.) The payback for Option 2 (purchase new machine) is years Compute the ARR (accounting rate of return) for each of the options. = ARR % Refurbish Purchase % 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 Inflow PV Factor (i = 16%) Present Value Years 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 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.) Net Cash Present PV Factor (i = 16%) Years Inflow Value Present value of each year's inflow: 1 2 3 (n = 1) (n = 2) (n = 3) (n = 4) (n = 5) (n = 6) 4 5 6 7 8 (n = 7) (n = 8) (n = 9) 9 10 (n = 10) Total PV of cash inflows 0 Initial investment Net present value of the project Finally, compute the profitability index for each option. (Round to two decimal places X.XX.) = Profitability index Refurbish Purchase = Requirement 2. Which option should Gilpin choose? Why? Review your answers in Requirement 1. Gilpin should choose V because this option has a payback period, an ARR that is the other option, a NPV, and its profitability index is