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 retum of 14%. (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. 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 inflows Year Net Cash Outflows Amount Invested $ 2,400,000 - X - X Annual Accumulated More Info Data Table 0 1 2 Year The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,400,000. 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 $4,200,000. A new machine would last 10 years and have no residual value. 3 3.630,000 4 Year 1 Year 2 5 Refurbish Current Purchase New Machine Machine $ 1,680,000 $ 390,000 460,000 320.000 390,000 250.000 320,000 180.000 250,000 180.000 250.000 Year 3 6 Year 4 7 Print Print Done Year 5 8 Year 6 Year 7 (Round your answer to one decimal place.) 180.000 250.000 250.000 Year 8 180.000 The payback for Option 1 (refurbish current machine) is years. Year 9 250.000 250,000 Now complete the payback schedule for Option 2 (purchase). Year 10 Net Cash Inflows $ 3,360,000 $ Total 6,300,000 Year Net Cash Outflows Amount Invested $ 4,200,000 Annual Accumulated 0 1 1 Print Print Done 2 3 4 5 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 retum) 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 = 14%) 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 PV Factor Present Years Inflow (i = 14%) Value 1 2 3 4 Present value of each year's inflow: (n = 1) (n=2) (n = 3) (n = 4) (n = 5) (n = 6) (n=7) (n = 8) (n=9) 5 6 7 8 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 XXX) Profitability index Refurbish Purchase Requirement 2. Which option should Colston choose? Why? Review your answers in Requirement 1. Colston should choose because this option has a payback period, an ARR that is the other option, a VNPV, and its profitability index is - Reference Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 Period 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.797 Period 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.712 Period 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.636 Period 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.567 Period 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.507 Period 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.452 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.5820.540 0.502 0.467 0.404 Period 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.361 Period 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.322 Period 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.287 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.257 Period 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.229 Period 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.205 Period 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.183 Period 16 0.853 0.728 0.623 0.534 0.458 0.394 0.3390.292 0.252 0.218 0.163 Period 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.2310.1980.146 Period 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.130 Period 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.116 Period 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.104 Period 21 0.811 0.660 0.538 0.439 0.359 0.2940.242 0.199 0.1640.135 0.093 Period 22 0.803 0.647 0.522 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.083 Period 23 0.795 0.634 0.507 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.074 Period 24 0.788 0.622 0.492 0.390 0.310 0.247 0.197 0.158 0.126 0.1020.066 Period 25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.059 Period 26 0.772 0.598 0.464 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.053 Period 27 0.764 0.586 0.450 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.047 Period 28 0.757 0.574 0.437 0.333 0.255 0.1960.150 0.116 0.090 0.069 0.042 Period 29 0.7490.563 0.424 0.321 0.243 0.185 0.141 0.107 0.002 0.063 0.037 Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.033 Period 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.011 Period 50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.0090.003 Print Done Reference Present Value of Ordinary Annuity of $1 Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 20% 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 0.833 Period 2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.626 1.605 1.566 1.528 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 2.106 Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.855 2.798 2.690 2.589 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 2.991 Period 6 5.795 5.601 5.417 5.2425.0764.917 4.767 4.623 4.486 4.355 4.111 3.889 3.784 3.685 3.498 3.326 Period 7 6.728 6.472 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 3.605 Period 8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078 3.837 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 4.303 4.031 Period 10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.6505.216 5.019 4.833 4.494 4.192 Period 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 Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.1616.814 6.1945.660 5.421 5.197 4.793 4.439 Period 13 12.134 11.348 10.635 9.986 9.3948.853 8.358 7.904 7.487 7.103 6.424 5.842 5.583 5.342 | 4.910 4.533 Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 | 6.6286.002 5.724 5.468 5.008 4.611 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 4.675 Period 16 14.718 13.578 12.561 | 11.652 10.83810.106 9.447 8.851 8.313 7.824 6.9746.265 5.954 5.669 5.1624.730 Period 17 15.562 14292 13.166 12.166 11.27410.4771 9.763 9.122 8.544 8.022 7.120 6.373 6.047 5.749 5.222 4.775 Period 18 16.398 14.992 | 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 6.128 5.818 5.2734.812 Period 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 6.198 5.877 5.316 4.844 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 10.5949.818 9.129 8.514 7.469 6.623 6.259 5.9295.353 4.870 Period 21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.0179.292 8.6497.562 6.687 6.312 5.973 5.384 | 4.891 Period 22 19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.2019.442 8.772 7.645 6.743 6.3596.011 5.410 4.909 Period 23 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.5808.883 7.718 6.792 6.399 6.044 5.432 4.925 Period 24 21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985 7.784 6.835 6.434 6.073 5.451 4.937 Period 25 22.023 19.523 17.413 15.622 14.09412.783 11.654 10.675 9.8239.077 7.8436.873 6.464 6.097 5.467 4.948 Period 26 22.795 20.121 | 17.877 15.963 14.375 13.003 11.826 10.8109.929 9.161 7.8966.906 6.491 6.118 5.480 4.956 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 6.136 5.492 4.964 Period 28 24.31621.281 18.764 16.663 14.89813.406 12.137 11.051 10.116 9.307 7.984 6.961 6.534 6.152 5.502 4.970 Period 29 25.06621.844 19.188 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.022 6.983 6.551 6.166 5.510 4.975 Period 30 25.80822.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.4278.055 7.003 6.566 6.177 5.517 4.979 Period 40 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.7798.244 7.105 6.642 6.233 5.548 | 4.997 Period 50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 8.304 7.133 6.661 6.246 5.554 4.999 Future Value of $1 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 1% 2% 3% 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 1.1241.145 1.166 1.1881.210 1.254 1.300 1.323 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.405 1.482 1.521 1.041 1.0821.126 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 2.011 1.062 1.126 1.194 1.265 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 1.504 1.606 1.7141.828 1.949 2211 2.502 2.680 1.083 1.1721.267 1.369 1.4771.594 1.7181.851 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 2.3582.773 3.252 3.518 1.105 1.219 1.344 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 4.226 4.652 1.127 1.268 1.426 1.601 1.796 2.012 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 2.579 2.937 3.342 3.798 4.887 6.261 7.076 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 5.474 7.1388.137 1.173 1.373 1.605 1.8732183 2.540 2.952 3.426 3.970 4.595 6.130 8.1379.358 1.184 1.400 1.653 1.9482 292 2.693 3.1593.700 4.328 5.0546.866 9.276 10.76 1.196 1.428 1.7022026 2407 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 14.23 1.220 1.486 1.806 2.191 2653 3.207 3.870 4.661 5.604 6.727 9.646 13.74 16.37 1.232 1.516 1.860 2 279 2786 3.400 4.141 5.034 6.1097.400 10.80 15.67 18.82 1.245 1.546 1.916 2370 2.925 3.604 4.430 5.4376.659 8.140 12.10 17.86 21.64 1.257 1.577 1.974 | 2.465 3.072 3.820 4.741 5.871 7.258 8.954 13.55 20.36 24.89 1.270 1.608 2.0332563 3.225 4.049 | 5.0726.341 7.911 9.850 15.18 23.21 28.63 1.282 1.641 2.094 2666 3.386 4.292 5.427 6.848 8.623 10.83 17.00 26.46 32.92 1.295 1.673 2.1572772 3.556 4.549 5.8077.396 9.399 11.92 19.04 30.17 37.86 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 6.6498.627 11.17 14.42 23.88 39.20 50.07 1.335 1.776 2.357 3.119 4.116 5.418 7.114 9.317 12.17 15.86 26.75 44.69 57.58 1.348 1.811 2.427 3.243 4.3225.743 7.612 10.06 13.27 17.45 | 29.96 50.95 66.21 1.489 2.208 3.262 4.801 7.040 10.29 14.97 21.72 31.41 45.26 93.05 188.9 267.9 1.645 2.692 4.384 7.107 11.47 18.42 29.46 46.90 74.36 117.4 289.0 700.21,084 Period 21 Period 22 Period 23 Period 24 Period 25 Period 26 Period 27 Period 28 Period 29 Period 30 Period 40 Period 50 Reference 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 Future Value of Ordinary Annuity of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 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 2.010 2.020 2.030 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 5.3095.416 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 6.802 6.975 7.153 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 8.9239.2009.487 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 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 91.02 102.4 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 30.5434.25 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 53.44 60.89 69.53 79.54 104.6 138.3 159.3 26.97 30.42 34.43 39.08 44.50 50.82 58.18 66.76 76.79 | 88.50 118.2 158.7184.2 28.24 32.03 36.46 41.65 47.73 54.86 63.25 73.11 84.70 98.35133.3 181.9 212.8 29.53 33.67 38.55 44.31 51.11 59.16 68.68 79.95 93.32 109.2 150.3 208.3 245.7 30.82 35.3440.71 47.08 54.6763.71 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 1342 190.7 272.9 327.1 33.45 38.79 45.22 52.97 62.32 73.6487.35 104.0 124.1 148.6 214.6 312.1 377.2 34.78 40.57 47.58 56.08 66.44 79.06 94.46 113.3 136.3 164.5 241.3 356.8 434.7 48.8960.40 75.40 95.03 120.8 154.8 199.6 259.1 337.9 442.6 767.1 1,342 1,779 64.46 84.58 112.8 152.7 209.3 290.3 406.5 573.8 815.1 1,164 2,400 4,995 7,218 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 Period 40 Period 50 Print Done