HazenHazen

Manufacturing, Inc. has a manufacturing machine that needs attention.

LOADING...

(Click the icon to view additional information.)

HazenHazen

expects the following net cash inflows from the two options:

LOADING...

(Click the icon to view the net cash flows.)

HazenHazen

uses straight-line depreciation and requires an annual return of

1414%.

LOADING...	(Click the icon to view Present Value of $1 table.)
LOADING...	( Click the icon to view Present Value of Ordinary Annuity of $1 table.)
LOADING...	(Click the icon to view Future Value of $1 table.)
LOADING...	(Click the icon to view Future Value of Ordinary Annuity of $1 table.)

Read the requirements

LOADING...

.

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	Net Cash Inflows
Year	Amount Invested	Annual	Accumulated
0	$1,600,000
1
2
3
4
5
6
7
8

Enter any number in the edit fields and then click Check Answer.

8

parts remaining

Clear All

Check Answer

More Info

The company is considering two options. Option 1 is to refurbish the current machine at a cost of

$1,600,000.

If refurbished,

HazenHazen

expects the machine to last another

eighteight

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.

PrintDone

Data Table

Year	Refurbish Current	Purchase New
	Machine	Machine
1	$1,030,000	$4,470,000
2	280,000	420,000
3	230,000	370,000
4	180,000	320,000
5	130,000	270,000
6	130,000	270,000
7	130,000	270,000
8	130,000	270,000
9		270,000
10		270,000
Total	$2,240,000	$7,200,000

Present Value of $1
Periods	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%	12%	14%	15%	16%	18%	20%
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
2	0.980	0.961	0.943	0.925	0.907	0.890	0.873	0.857	0.842	0.826	0.797	0.769	0.756	0.743	0.718	0.694
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
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
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
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
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
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
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
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

Present Value of Ordinary Annuity of $1
Periods	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%	12%	14%	15%	16%	18%	20%
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
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
3	2.941	2.884	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
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
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
6	5.795	5.601	5.417	5.242	5.076	4.917	4.767	4.623	4.486	4.355	4.111	3.889	3.784	3.685	3.498	3.326
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
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
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
10	9.471	8.983	8.530	8.111	7.722	7.360	7.024	6.710	6.418	6.145	5.650	5.216	5.019	4.833	4.494	4.192