Colston Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Colston expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Colston uses straight-line depreciation and requires an annual return of 16%. 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). Net Cash Outflows (Click the icon to view Present Value of $1 table.) (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.) Read the requirements. Net Cash Inflows Year Amount Invested Annual Accumulated Data table 0 $ 1,400,000 1 2 Refurbish Current Year Machine Purchase New Machine 3 Year 1 $ 210,000 $ 2,610,000 4 Year 2 550,000 670,000 5 Year 3 410,000 530,000 6 Year 4 270,000 390,000 7 Year 5 130,000 250,000 8 Year 6 130,000 250,000 (Round your answer to one decimal place.) Year 7 130,000 250,000 The payback for Option 1 (refurbish current machine) is Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Year 8 130,000 250,000 years. Year 9 250,000 250,000 Year 10 Year Amount Invested Net Cash Inflows Annual Accumulated 1,960,000 $ 5,700,000 Total 0 $ 3,800,000 1 Print Done More info The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,400,000. If refurbished, Colston 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. Print Done Time Remaining: 01:43:43 Nex Colston Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Colston expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Colston uses straight-line depreciation and requires an annual return of 16%. (Click the icon to view Present Value of $1 table.) (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.) Read the requirements. 0 3,800,000 1 2 3 4 6 7 8 9 10 More info The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,400,000. If refurbished, Colston 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. Data table Refurbish Current Year Machine Purchase New Machine (Round your answer to one decimal place.) Year 1 210,000 $ 2,610,000 The payback for Option 2 (purchase new machine) is Compute the ARR (accounting rate of return) for each of the options. years. Year 2 550,000 670,000 Year 3 410,000 530,000 Year 4 270,000 390,000 = ARR Year 5 130,000 250,000 Refurbish Purchase % % Year 6 130,000 250,000 Year 7 130,000 250,000 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. Year 8 130,000 250,000 Year 9 250,000 Net Cash PV Factor Years Inflow (i = 16%) Present Value 250,000 Year 10 1,960,000 $ 5,700,000 Present value of each year's inflow Total N Colston Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Colston expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Colston uses straight-line depreciation and requires an annual return of 16%. (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. (Click the icon to view Present Value of $1 table.) (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.) Read the requirements. More info Refurbish Purchase ARR % % 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 neg The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,400,000. If refurbished, Colston 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. Net Cash PV Factor Present Years Inflow (i = 16%) Value Present value of each year's inflow: 1 (n = 1) 2 (n = 2) 3 (n = 3) 4 (n = 4) 5 (n = 5) 6 (n = 6) 7 (n = 7) 8 (n = 8) Total PV of cash inflows 0 Initial investment Net present value of the project Data table Refurbish Current Year Machine Purchase New Machine Year 1 $ 210,000 $ 2,610,000 Year 2 550,000 670,000 Year 3 410,000 530,000 Year 4 270,000 390,000 Year 5 130,000 250,000 Year 6 130,000 250,000 Year 7 130,000 250,000 Year 8 130,000 250,000 Year 9 250,000 250,000 Year 10 1,960,000 $ 5,700,000 Total Colston Manufacturing, Inc. has a manufacturing machine that needs attention. i (Click the icon to view additional information.) Colston expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Colston uses straight-line depreciation and requires an annual return of 16%. (Click the icon to view Present Value of $1 table.) (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.) Read the requirements. Present value of each year's inflow: 1 (n = 1) 2 (n = 2) 3 (n = 3) 4 (n = 4) 5 (n = 5) 6 (n = 6) 7 (n = 7) 8 (n = 8) 9 (n = 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.) Refurbish Purchase Requirement 2. Which option should Colston choose? Why? Review your answers in Requirement 1. Colston should choose = Profitability index = More info The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,400,000. If refurbished, Colston 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. Print Done because this option has a payback period, an ARR that is the other option, a NPV, and its profitability index is Time Remaining: 01:43:19 Naut