Question
Henderson Manufacturing, Inc. has a manufacturing machine that needs attention. Henderson expects the following net cash inflows from the twooptions: Henderson usesstraight-line depreciation and requires
Henderson Manufacturing, Inc. has a manufacturing machine that needs attention.
Henderson expects the following net cash inflows from the twooptions:
Henderson usesstraight-line depreciation and requires an annual return of
10%
Requirement 1. Compute thepayback, theARR, theNPV, 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
$1,200,000
1
$350,000
2
340,000
3
270,000
4
200,000
5
130,000
6
130,000
7
130,000
8
130,000
The company is considering two options.
Option 1 is to refurbish the current machine at a cost of
$1,200,000.
Ifrefurbished,
Henderson 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
$4,600,000.
A new machine would last
10 years and have no residual value.
Year
Refurbish Current
Purchase New
Machine
Machine
1
$350,000
$3,780,000
2
340,000
510,000
3
270,000
440,000
4
200,000
370,000
5
130,000
300,000
6
130,000
300,000
7
130,000
300,000
8
130,000
300,000
9
300,000
10
300,000
Total
$1,680,000
$6,900,000
1.
Compute thepayback, theARR, theNPV, and the profitability index of these two options.
2.
Which option should Henderson
choose? Why?
Here are the 4 tables:
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
11
0.896
0.804
0.722
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
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
13
0.879
0.773
0.681
0.601
0.530
0.469
0.415
0.368
0.326
0.290
0.229
0.182
0.163
0.145
0.116
0.093
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
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
16
0.853
0.728
0.623
0.534
0.458
0.394
0.339
0.292
0.252
0.218
0.163
0.123
0.107
0.093
0.071
0.054
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
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
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
20
0.820
0.673
0.554
0.456
0.377
0.312
0.258
0.215
0.178
0.149
0.104
0.073
0.061
0.051
0.037
0.026
21
0.811
0.660
0.538
0.439
0.359
0.294
0.242
0.199
0.164
0.135
0.093
0.064
0.053
0.044
0.031
0.022
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
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
24
0.788
0.622
0.492
0.390
0.310
0.247
0.197
0.158
0.126
0.102
0.066
0.043
0.035
0.028
0.019
0.013
25
0.780
0.610
0.478
0.375
0.295
0.233
0.184
0.146
0.116
0.092
0.059
0.038
0.030
0.024
0.016
0.010
26
0.772
0.598
0.464
0.361
0.281
0.220
0.172
0.135
0.106
0.084
0.053
0.033
0.026
0.021
0.014
0.009
27
0.764
0.586
0.450
0.347
0.268
0.207
0.161
0.125
0.098
0.076
0.047
0.029
0.023
0.018
0.011
0.007
28
0.757
0.574
0.437
0.333
0.255
0.196
0.150
0.116
0.090
0.069
0.042
0.026
0.020
0.016
0.010
0.006
29
0.749
0.563
0.424
0.321
0.243
0.185
0.141
0.107
0.082
0.063
0.037
0.022
0.017
0.014
0.008
0.005
30
0.742
0.552
0.412
0.308
0.231
0.174
0.131
0.099
0.075
0.057
0.033
0.020
0.015
0.012
0.007
0.004
40
0.672
0.453
0.307
0.208
0.142
0.097
0.067
0.046
0.032
0.022
0.011
0.005
0.004
0.003
0.001
0.001
50
0.608
0.372
0.228
0.141
0.087
0.054
0.034
0.021
0.013
0.009
0.003
0.001
0.001
0.001
PrintDone
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
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
12
11.255
10.575
9.954
9.385
8.863
8.384
7.943
7.536
7.161
6.814
6.194
5.660
5.421
5.197
4.793
4.439
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
5.342
4.910
4.533
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
4.611
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
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
4.730
17
15.562
14.292
13.166
12.166
11.274
10.477
9.763
9.122
8.544
8.022
7.120
6.373
6.047
5.749
5.222
4.775
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
5.273
4.812
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
20
18.046
16.351
14.877
13.590
12.462
11.470
10.594
9.818
9.129
8.514
7.469
6.623
6.259
5.929
5.353
4.870
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
4.891
22
19.660
17.658
15.937
14.451
13.163
12.042
11.061
10.201
9.442
8.772
7.645
6.743
6.359
6.011
5.410
4.909
23
20.456
18.292
16.444
14.857
13.489
12.303
11.272
10.371
9.580
8.883
7.718
6.792
6.399
6.044
5.432
4.925
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
25
22.023
19.523
17.413
15.622
14.094
12.783
11.654
10.675
9.823
9.077
7.843
6.873
6.464
6.097
5.467
4.948
26
22.795
20.121
17.877
15.983
14.375
13.003
11.826
10.810
9.929
9.161
7.896
6.906
6.491
6.118
5.480
4.956
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
28
24.316
21.281
18.764
16.663
14.898
13.406
12.137
11.051
10.116
9.307
7.984
6.961
6.534
6.152
5.502
4.970
29
25.066
21.844
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
30
25.808
22.396
19.600
17.292
15.372
13.765
12.409
11.258
10.274
9.427
8.055
7.003
6.566
6.177
5.517
4.979
40
32.835
27.355
23.115
19.793
17.159
15.046
13.332
11.925
10.757
9.779
8.244
7.105
6.642
6.233
5.548
4.997
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
PrintDone
Future Value of$1
Periods
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
12%
14%
15%
1
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
2
1.020
1.040
1.061
1.082
1.103
1.124
1.145
1.166
1.188
1.210
1.254
1.300
1.323
3
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
4
1.041
1.082
1.126
1.170
1.216
1.262
1.311
1.360
1.412
1.464
1.574
1.689
1.749
5
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
6
1.062
1.126
1.194
1.265
1.340
1.419
1.501
1.587
1.677
1.772
1.974
2.195
2.313
7
1.072
1.149
1.230
1.316
1.407
1.504
1.606
1.714
1.828
1.949
2.211
2.502
2.660
8
1.083
1.172
1.267
1.369
1.477
1.594
1.718
1.851
1.993
2.144
2.476
2.853
3.059
9
1.094
1.195
1.305
1.423
1.551
1.689
1.838
1.999
2.172
2.358
2.773
3.252
3.518
10
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
11
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
12
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
13
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
14
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
15
1.161
1.346
1.558
1.801
2.079
2.397
2.759
3.172
3.642
4.177
5.474
7.138
8.137
16
1.173
1.373
1.605
1.873
2.183
2.540
2.952
3.426
3.970
4.595
6.130
8.137
9.358
17
1.184
1.400
1.653
1.948
2.292
2.693
3.159
3.700
4.328
5.054
6.866
9.276
10.76
18
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
19
1.208
1.457
1.754
2.107
2.527
3.026
3.617
4.316
5.142
6.116
8.613
12.06
14.23
20
1.220
1.486
1.806
2.191
2.653
3.207
3.870
4.661
5.604
6.727
9.646
13.74
16.37
21
1.232
1.516
1.860
2.279
2.786
3.400
4.141
5.034
6.109
7.400
10.80
15.67
18.82
22
1.245
1.546
1.916
2.370
2.925
3.604
4.430
5.437
6.659
8.140
12.10
17.86
21.64
23
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
24
1.270
1.608
2.033
2.563
3.225
4.049
5.072
6.341
7.911
9.850
15.18
23.21
28.63
25
1.282
1.641
2.094
2.666
3.386
4.292
5.427
6.848
8.623
10.83
17.00
26.46
32.92
26
1.295
1.673
2.157
2.772
3.556
4.549
5.807
7.396
9.399
11.92
19.04
30.17
37.86
27
1.308
1.707
2.221
2.883
3.733
4.822
6.214
7.988
10.25
13.11
21.32
34.39
43.54
28
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
29
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
30
1.348
1.811
2.427
3.243
4.322
5.743
7.612
10.06
13.27
17.45
29.96
50.95
66.21
40
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
50
1.645
2.692
4.384
7.107
11.47
18.42
29.46
46.90
74.36
117.4
289.0
700.2
1,084
PrintDone
Future Value of Ordinary Annuity of$1
Periods
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
12%
14%
15%
1
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
2.010
2.020
2.030
2.040
2.050
2.060
2.070
2.080
2.090
2.100
2.120
2.140
2.150
3
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
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
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
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
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
8.286
8.583
8.892
9.214
9.549
9.897
10.260
10.64
11.03
11.44
12.30
13.23
13.73
9
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
10.46
10.95
11.46
12.01
12.58
13.18
13.82
14.49
15.19
15.94
17.55
19.34
20.30
11
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
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
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
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
15
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
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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
24
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
25
28.24
32.03
36.46
41.65
47.73
54.86
63.25
73.11
84.70
98.35
133.3
181.9
212.8
26
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
27
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
28
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
29
33.45
38.79
45.22
52.97
62.32
73.64
87.35
104.0
124.1
148.6
214.6
312.1
377.2
30
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
40
48.89
60.40
75.40
95.03
120.8
154.8
199.6
259.1
337.9
442.6
767.1
1,342
1,779
50
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
PrintDone
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Principles Of Financial Accounting
Authors: Kermit Larson, John Wild
20th Edition
77338235, 978-0077619442
