Gammon 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 $2,600,000. If refurbished, Gammon 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 $4,800,000. A new machine would last 10 years and have no residual value. Gammon expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gammon uses straight-line depreciation and requires an annual retum of 16%. (Click the icon to view the Present Value of $1 table.) (Click the icon to view the Present Value of Annuity of $1 table.) Requirements 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options 2. Which option should Gammon choose? Why? (Round your answer to one decimal place.) The payback for Option 2 (purchase new machine) is 3.7 years. Compute the ARR (accounting rate of return) for each of the options, Average annual operating income ARR Refurbish Average amount invested 1,300,000 2,400,000 % Purchase % Choose from any list or enter any number in the input fields and then click Check Answer. 4 parts remaining Clear All Check Answer i Data Table facturing, In 1 is to refur another 8 y ew machine two options con to view straight-line on to view is considering mmon expects chine at a cost the following Year Refurbish Current Purchase New Machine Machine 1 nt Value of Anr $ 2,020,000 $ N 360,000 3,420,000 560,000 500,000 3 he payback, on should G 300,000 4 5 swer to one 240,000 180,000 180,000 180,000 440,000 380,000 380,000 380,000 6 er Option 2 7 RR (account 8 180,000 380,000 9 Average 380,000 380,000 10 $ Total 3,640,000 $ 7,200,000 my list or en Print Done Clear All Check Answer Terms of Use Privacy Policy Permissione Present Value of $1 Periods 1 2 3 4 5 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 4% 0.962 0.925 0.889 0.855 0.822 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 8% 0.926 0.857 0.794 0.735 0.681 9% 0.917 0.842 0.772 0.708 0.650 10% 0.909 0.826 0.751 0.683 0.621 15% 0.870 0.756 0.658 0.572 0.497 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 16% 0.862 0.743 0.641 0.552 0.476 18% 0.847 0.718 0.609 0.516 0.437 6 7 8 9 10 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.790 0.760 0.731 0.703 0.676 0.630 0.583 0.540 0.500 0.463 0.596 0.547 0.502 0.460 0.422 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.410 0.354 0.305 0.263 0.227 0.370 0.314 0.266 0.225 0.191 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 11 12 13 14 15 0.896 0.887 0.879 0.870 0.861 0.804 0.788 0.773 0.758 0.743 0.650 0.625 0.601 0.577 0.555 0.527 0.497 0.469 0.442 0.417 0.429 0.397 0.368 0.340 0.315 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0218 0.198 0.180 0.164 0.149 0.388 0.356 0.326 0.299 0.275 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.195 0.168 0.145 0.125 0.108 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 16 17 18 19 20 0.853 0.844 0.836 0.828 0.820 0.623 0.605 0.587 0.570 0.554 0.534 0.513 0.494 0.475 0.456 0.292 0.270 0.250 0.232 0.215 0.252 0.231 0.212 0.194 0.178 0.123 0.108 0.095 0.083 0.073 0.107 0.093 0.081 0.070 0.061 0.728 0.714 0.700 0.686 0.673 0.660 0.647 0.634 0.622 0.610 0.162 0.135 0.137 0.112 0.116 0.093 0.099 0.078 0.084 0.065 0.071 0.054 0.060 0.045 0.051 0.038 0.043 0.031 0.037 0.026 0.031 0.022 0.018 0.022 0.015 0.019 0.013 0.016 0.010 0.014 0.009 0.011 0.007 21 22 23 24 25 26 27 0.811 0.803 0.795 0.788 0.780 0626 0.538 0.522 0.507 0.492 0.478 0.464 0.450 0.394 0.371 0.350 0.331 0.312 0.294 0278 0.262 0.247 0233 0 220 0207 0.439 0.422 0.406 0.390 0.375 0.359 0.342 0.326 0.310 0.295 0 281 0.268 0.242 0.226 0.211 0.197 0.184 0.199 0.184 0.170 0.158 0.146 0.164 0.150 0.138 0.126 0.116 0.135 0.123 0.112 0.102 0.092 0.093 0.083 0.074 0.066 0.059 0.093 0.080 0.069 0.060 0.051 0.044 0.038 0.033 0.028 0.024 0.021 0.018 0.064 0.056 0.049 0.043 0.038 0.053 0.046 0.040 0.035 0.030 0.361 0.772 0.764 0.598 0.586 0.172 0.161 0.135 0.125 0.106 0.098 AAA 0.084 0.076 0.053 0.047 0.347 0.033 0.029 0.026 0.023 Print Done Reference - de 1,2 of 4 5 0.961 0.951 0.924 0.906 0.888 0.863 0.823 0.784 0.792 0.747 0.763 0.713 0.708 0.650 0.592 0.519 0.552 0.476 6 7 8 9 10 0.746 0.711 0.677 0.645 0.614 tral 0.705 0.665 0.627 0.592 0.558 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.666 0.623 0.582 0.544 0.508 0.596 0.547 0.502 0.460 0.422 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.456 0.400 0.351 0.308 0.270 0.410 0.354 0.305 0.263 0.227 on 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 11 12 13 14 15 0.475 0.444 0.415 0.388 0.356 0.326 0.299 0.275 0.237 0.208 0.182 0.160 0.140 0.215 0.187 0.163 0.141 0.123 0.195 0.168 0.145 0.125 0.108 0.388 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0660 0.647 0.634 0.622 0.610 0.598 0.586 0.574 0.563 0.552 0453 0.372 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.163 0.855 0.622 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.439 0.422 0.406 0.390 0.375 0.361 0.347 0.333 0.321 0.308 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.853 0.844 0.836 0.828 0.820 0.516 0.482 0.437 0.402 0.370 0.335 0.314 0.279 0.266 0.233 0.225 0.194 0.191 0.162 0.162 0.135 0.137 0.112 0.116 0.093 0.099 0.078 0.084 0.065 0.071 0.054 0.060 0.045 0.051 0.038 0.043 0.031 0.037 0.026 0.031 0.022 0.026 0.018 0.022 0.015 0.019 0.013 0.016 0.010 0.362 0339 0.317 0.296 0.277 0.258 16 17 18 19 20 21 22 23 24 25 0.623 0.605 0.587 0.570 0.554 0.538 0.522 0.507 0.492 0.478 0.107 0.093 0.081 0.070 0.061 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.386 0.322 0.350 0.287 0.319 0.257 0.290 0.229 0.263 0.205 0.239 0.183 0.218 0.198 0.146 0.180 0.130 0.164 0.116 0.149 0.104 0.135 0.093 0.123 0.083 0.112 0.074 0.102 0.066 0.092 0.059 0.084 0.053 0.076 0.047 0.069 0.042 0.063 0.037 0.057 0.033 0.022 0.011 0.009 0.003 0.811 0.803 0.795 0.788 0.780 0.359 0.342 0.326 0.310 0.295 0.294 0.278 0.262 0.247 0.233 0.242 0.226 0.211 0.197 0.184 0.252 0.231 0.212 0.194 0.178 0.164 0.150 0.138 0.126 0.116 0.106 0.098 0.090 0.082 0.075 0.032 0.013 0.123 0.108 0.095 0.083 0.073 0.064 0.056 0.049 0.043 0.038 0.033 0.029 0.026 0.022 0.020 0.005 0.001 0.772 0.093 0.080 0.069 0.060 0.051 0.044 0.038 0.033 0.028 0.024 0.021 0.018 0.016 0.014 0.012 0.003 0.001 0.464 26 27 28 29 30 0.199 0.184 0.170 0.158 0.146 0.135 0.125 0.116 0.107 0.099 0.046 0.764 0.757 0.749 0.742 0.672 0.281 0.268 0.255 0.243 0.231 0.450 0.437 0.424 0.412 0.307 0.220 0.207 0.196 0.185 0.174 0.097 0.054 0.172 0.161 0.150 0.141 0.131 0.053 0.046 0.040 0.035 0.030 0.026 0.023 0.020 0.017 0.015 0.004 0.001 0.014 0.011 0.010 0.008 0.007 0.001 0.000 0.009 0.007 0.006 0.005 0.004 0.001 0.000 0.142 40 50 0.208 0.141 0.067 0.034 0.608 0.228 0.087 0.021 ck C Print Done ana co Reference ere e de 62 of Periods 1 tra 2 3 4 5 ion 6 7 9 10 11 12 13 14 15 Present Value of Annuity of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 2941 2884 2.829 2.775 2.723 2.673 2624 2577 2531 2.487 2.402 2.322 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 5.795 5,601 5.417 5.242 5.076 4.917 4.767 4623 4.486 4.355 4.111 3.889 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5 206 5.033 4.868 4.564 4.288 7.652 7.325 7,020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 8.566 8.162 7.786 7435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5216 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 12.134 11.348 10.6359.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8244 7.786 7.367 6.628 6.002 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 6.811 6.142 14.718 13.578 12 561 11652 10.838 10.1069.447 8.851 8.313 7.824 6.974 6.265 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.120 6.373 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 17 226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 18.046 16.351 14.877 13.590 12.462 11470 10.5949.818 9.129 8.514 7.469 6.623 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 7.562 6.687 19.660 17.658 15.937 14.451 13.163 12.042 11.061 10 201 9442 8.772 7.645 6.743 20.456 18 292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 7.718 6.792 21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985 7.784 6.835 22.023 19.523 17.413 15 622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 22.795 20.12117.877 15 983 14.375 13.003 11.826 10.810 9.929 9.161 7.896 23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.027 9.237 7.943 6.935 an ENE 15% 16% 0.870 0.862 1.626 1.605 2.283 2.246 2.856 2.798 3.352 3.274 3.7843.685 4.160 4.039 4.487 4.344 4.772 4.607 5.019 4.833 5.234 5.029 5.421 5.197 5.583 5.342 5.724 5.468 5.847 5.575 5.954 5.668 6047 5.749 6.128 5.818 6.198 5.877 6.259 5.929 6.312 5.973 6.359 6.011 6.399 6.044 6.434 6.073 6.464 6.097 6.491 6.118 6.514 6.136 18% 20% 0.847 0.833 1.566 1.528 2.174 2.106 2.690 2.589 3.127 2.991 3.498 3.326 3.812 3.605 4.078 3.837 4.303 4.031 4494 4.192 4.656 4.327 4.793 4.439 4.910 4.533 5.008 4.611 5.092 4.675 5.162 4730 5.222 4.775 5.273 4.812 5.316 4.843 5.353 4.870 5.384 4.891 5.410 4.909 5.432 4.925 5.451 4.937 5.467 4.948 5.480 4.956 5.492 4.964 16 17 18 19 20 21 22 23 24 25 26 27 8.906 . ck C Print Done - Xinage eco Reference rerago edd 76,2 of 4 5 3433 2855 2.798 3.352 3.274 3.784 3.685 4.160 4.039 4.487 4.344 4.772 4.607 5.019 4.833 6 7 8 9 10 attra sion 11 12 13 14 15 5.234 5.421 5.583 5.724 5.847 5.029 5.197 5.342 5.468 5.575 16 17 18 19 20 3.902 3.808 3.717 3.630 3.546 3.465 3387 3.312 3.240 3.170 3.037 2914 4.853 4713 4.580 4.452 4329 4.212 4.100 3.993 3.890 3.791 3.605 5.795 5601 5.417 5.242 5,076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5,033 4.868 4.564 4.288 7.652 7,325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6247 5.995 5.759 5.328 4.946 9.471 8.983 | 8530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 10.3689.787 9253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 12.134 11.348 10.6359.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.628 6.002 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 6.811 6.142 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 6.974 6.265 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8,022 7.120 6.373 16.398 14.992 13.754 12659 11.690 10.828 10.059 9.372 8.756 8.201 7 250 8.467 17.226 15.678 14.324 13.13412085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 18.046 16.351 14.877 13.590 12.462 11470 10.594 9.818 9.129 8.514 7.469 6.623 18,857 17.011 15.415 14.029 12821 11.764 10.836 10.017 9292 8.649 7.562 6.687 19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772 7.645 6.743 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 7.718 6.792 21.243 18.914 16.936 15 247 13.799 12.550 11.469 10.529 9.707 8.985 7.784 6.835 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 7.843 6.873 22.795 20.121 17.877 15.983 14.375 13.003 11.826 10.810 9.929 9.161 7.896 6.906 23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.0279237 7.943 6.935 24.316 21.281 18.764 16.663 14.898 13.406 12.137 11.051 10.116 9.307 7.984 6.961 25.066 21.844 19.158 16.984 15.141 13.591 12.278 11.158 10.1989.370 8.022 6.983 25.808 22.396 19.600 17.292 15372 13.765 12.409 11.258 10.274 9.427 8.055 7.003 32 835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.7579.779 8.244 7.105 39.196 31424 25.730 21482 18 256 15.762 13.801 12 233 10.962 9915 8.304 7.133 2.690 2.589 3.127 2991 3.498 3.326 3.812 3.605 4.078 3.837 4.303 4.031 4.494 4.192 4.656 4.327 4.793 4.439 4910 4.533 5.008 4.611 5.092 4.675 5.162 4.730 5.222 4.775 5273 4.812 5.316 4.843 5.353 4870 5.384 4.891 5.410 4.909 5.432 4.925 5.451 4.937 5.467 4.948 5.480 4.956 5.492 4.964 5.502 4.970 5.510 4.975 5.517 4.979 5.548 4997 5.554 4.999 5.954 5.668 6.047 5.749 6.128 5.818 6.198 5.877 6.259 5.929 6.312 5.973 6.359 6.011 6.399 6.044 6.434 6.073 6.464 6.097 6.491 6.118 6.514 6.136 6.534 6.152 6.551 6.166 6.566 6.177 6.642 6.233 6.661 6.246 21 22 23 24 25 26 28 29 30 40 50 Print Done