Mandel Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Mandel expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Mandel uses straight-line depreciation and requires an annual return of 10%. 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 Annual Net Cash Outflows Accumulated Data table Year Amount Invested 0 $ 2,600,000 1 2 3 4 7 8 $ 1,560,000 $ 1,560,000 490,000 2,050,000 400,000 2,450,000 310,000 2,760,000 220,000 2,980,000 220,000 3,200,000 220,000 3,420,000 220,000 3,640,000 (Round your answer to one decimal place.) The payback for Option 1 (refurbish current machine) is Requirements 3.5 years. - X 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. 2. Which option should Mandel choose? Why? (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 Refurbish Current Year Machine Purchase New Machine Year 1 $ 1,560,000 $ Year 2 490,000 3,180,000 490.000 Year 3 400,000 400,000 Year 4 310,000 310,000 Year 5 220,000 220,000 Year 6 220,000 220,000 Year 7 220,000 220,000 Year 8 220,000 220,000 Year 9 220,000 220,000 Year 10 $ 3,640,000 $ 5,700,000 Total Print Done More info The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,600,000. If refurbished, Mandel 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 Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Net Cash Inflows Annual Accumulated Year Amount Invested 0 $ 3,800,000 1 2 3 4 $ 3,180,000 $ 3,180,000 490,000 3,670,000 400,000 4,070,000 310,000 4,380,000 220,000 4,600,000 6 220,000 4,820,000 7 220,000 5,040,000 8 220,000 5,260,000 9 220,000 5,480,000 10 220,000 5,700,000 (Round your answer to one decimal place.) The payback for Option 2 (purchase new machine) is 2.3 years. Compute the ARR (accounting rate of return) for each of the options. Average annual operating income Average amount invested = ARR Refurbish = % Purchase % Reference Present Value of $1 Periods Period 1 Period 2 1% 2% 0.990 0.980 0.980 0.961 3% 4% 5% 6% 7% 0.971 0.962 0.952 0.943 0.935 0.943 0.925 | 0.907 0.890 0.873 Period 3 0.971 0.942 Period 4 0.961 0.924 0.888 0.855 0.823 Period 5 0.951 0.906 0.863 0.822 0.784 0.915 0.889 0.864 0.840 0.816 Period 6 0.942 0.888 0.837 0.790 0.746 Period 7 0.933 0.871 0.813 0.760 0.711 0.665 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.705 0.666 0.623 0.582 Period 9 Period 10 0.914 0.837 0.905 0.820 0.744 0.766 0.703 0.645 0.592 0.676 0.614 0.558 8% 9% 10% 12% 14% 15% 16% 18% 20% 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.747 0.713 0.681 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.630 0.596 0.564 | 0.507 0.583 0.547 0.513 0.452 0.540 0.502 0.467 0.404 0.544 0.500 0.460 0.424 0.361 0.508 0.463 0.422 0.386 0.322 0.456 0.432 0.410 0.370 0.335 0.400 0.376 0.354 0.314 0.279 0.351 0.327 0.305 0.266 0.233 0.308 0.284 0.263 0.225 0.194 0.270 0.247 0.227 0.191 0.162 Period 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 Period 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 Period 14 0.870 0.758 0.661 0.577 0.505 Period 15 0.861 0.743 0.642 0.555 0.481 0.442 0.388 0.340 0.299 0.417 0.362 0.315 0.275 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.239 | 0.183 0.140 0.123 0.108 0.084 0.065 Period 16 0.853 0.728 0.623 Period 17 0.844 0.714 0.605 0.534 0.458 0.394 0.339 0.292 0.513 | 0.436 0.371 0.317 0.270 Period 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 Period 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 Period 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.252 0.218 | 0.163 0.123 0.107 0.093 0.071 0.054 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026 Period 21 0.811 0.660 0.538 0.439 0.359 0.294 0.242 Period 22 0.803 0.647 0.522 0.422 0.342 0.278 0.226 0.199 0.184 Period 23 0.795 0.634 0.507 0.406 Period 24 0.788 0.622 0.492 0.390 0.310 Period 25 0.780 0.610 0.478 0.375 0.295 0.326 0.262 0.211 0.170 0.247 0.197 0.158 0.233 0.184 0.146 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015 0.126 0.102 0.066 0.043 0.035 0.028 0.019 0.013 0.116 0.092 0.059 0.038 0.030 0.024 0.016 0.010 Period 26 0.772 0.598 0.464 0.361 Period 27 0.764 0.586 0.450 0.347 Period 28 0.757 0.574 0.437 0.333 0.281 0.220 0.172 0.135 0.268 0.207 0.161 0.125 0.255 0.196 0.150 0.116 Period 29 0.749 0.563 0.424 0.321 0.243 0.185 0.141 Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 Period 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.106 0.084 0.053 0.033 0.026 0.021 0.014 0.009 0.098 0.076 0.047 0.029 0.023 0.018 0.011 0.007 0.090 0.069 0.042 0.026 0.020 0.016 0.010 0.006 0.107 0.082 0.063 0.037 0.022 0.017 0.014 0.008 0.005 0.099 0.075 0.057 0.033 0.020 0.015 0.012 0.007 0.004 0.032 0.022 0.011 0.005 0.004 0.003 0.001 0.001 Period 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 - Reference Present Value of Ordinary Annuity of $1 Periods 1% 2% 3% 4% Period 1 0.990 0.980 0.971 0.962 Period 2 1.970 1.942 1.913 1.886 Period 3 2.941 2.884 2.829 2.775 Period 4 3.902 3.808 3.717 3.630 Period 5 4.853 4.713 4.580 4.452 5% 6% 7% 8% 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.626 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.283 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.855 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.352 9% 10% 12% 14% 15% 16% 18% 20% 0.870 0.862 0.847 0.833 1.605 1.566 1.528 2.246 2.174 2.106 2.798 2.690 2.589 3.274 3.127 2.991 Period 6 5.795 5.601 5.417 Period 7 6.728 6.472 6.230 Period 8 7.652 7.325 7.020 Period 9 8.566 8.162 7.786 Period 10 9.471 8.983 8.530 8.111 5.242 5.076 4.917 4.767 6.002 5.786 5.582 5.389 6.733 6.463 6.210 5.971 7.435 7.108 6.802 6.515 7.722 7.360 7.024 4.623 4.486 4.355 4.111 3.889 3.784 5.206 5.033 4.868 4.564 4.288 4.160 5.747 5.535 5.335 4.968 4.639 4.487 6.247 5.995 5.759 5.328 4.946 | 4.772 6.710 6.418 6.145 5.650 5.216 5.019 3.685 3.498 3.326 4.039 3.812 3.605 4.344 4.078 3.837 4.607 4.833 4.494 4.192 4.303 4.031 Period 11 10.368 9.787 9.253 8.760 Period 12 8.306 7.887 7.499 11.255 10.575 | 9.954 9.385 8.863 8.384 7.943 Period 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 Period 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 Period 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 Period 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 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 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 Period 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 Period 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 Period 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 Period 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 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 Period 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 Period 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 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 Period 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 Period 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 Period 30 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 Period 40 32.835 27.355 | 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 7.139 6.805 6.495 5.938 5.453 5.234 7.536 7.161 6.814 6.194 5.660 5.421 7.904 7.487 7.103 6.424 5.842 5.583 8.244 7.786 7.367 6.628 6.002 5.724 8.559 8.061 7.606 6.811 6.142 5.847 5.029 4.656 4.327 5.197 4.793 4.439 5.342 4.910 4.533 5.468 5.008 4.611 5.575 5.092 4.675 5.954 6.047 5.669 5.162 4.730 5.749 5.222 4.775 5.818 5.273 4.812 5.877 5.316 4.844 5.353 4.870 5.384 4.891 6.011 5.410 4.909 6.044 5.432 4.925 6.073 5.451 4.937 6.097 5.467 4.948 6.118 5.480 4.956 6.136 5.492 4.964 6.152 5.502 4.970 6.551 6.166 5.510 4.975 8.055 7.003 8.244 7.105 6.566 6.177 5.517 4.979 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 - Reference Future Value of $1 Periods 1% 2% 3% Period 1 1.010 Period 2 1.020 Period 3 1.030 Period 4 1.041 1.082 Period 5 1.051 1.104 Period 6 1.062 1.126 Period 7 1.072 1.149 1.194 1.265 1.340 1.230 1.316 1.407 4% 5% 6% 7% 8% 9% 10% 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 | 1.100 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1.210 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.419 1.501 1.587 1.677 | 1.772 1.504 1.606 1.714 1.828 1.949 12% 14% 15% 1.120 1.140 1.150 1.254 1.300 1.323 1.405 1.482 1.521 1.574 1.689 1.749 1.762 1.925 2.011 1.974 2.195 2.313 Period 8 1.083 1.172 Period 9 1.094 Period 10 1.105 2.502 2.660 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.476 2.853 3.059 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594 2.211 2.773 3.252 3.518 3.106 3.707 | 4.046 Period 11 Period 12 Period 13 Period 14 Period 15 Period 16 Period 17 1.116 Period 18 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 1.127 1.268 1.426 1.601 1.796 2.012 | 2.252 2.518 2.813 3.138 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.798 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 1.173 1.184 1.196 3.479 4.226 4.652 3.896 4.818 5.350 4.363 5.492 6.153 4.887 6.261 7.076 5.474 7.138 8.137 Period 19 1.208 Period 20 1.220 Period 21 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 6.130 8.137 9.358 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054 6.866 9.276 10.76 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 7.690 10.58 12.38 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 8.613 12.06 14.23 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727 9.646 13.74 16.37 1.232 1.516 1.860 2.279 Period 22 1.245 1.546 1.916 2.370 Period 23 1.257 1.577 1.974 2.465 Period 24 1.270 1.608 2.033 2.563 Period 25 1.282 1.641 2.094 Period 26 1.295 1.673 2.157 2.772 | 3.556 Period 27 1.308 1.707 2.221 2.883 3.733 Period 28 1.321 1.741 2.288 2.999 3.920 5.112 6.649 8.627 11.17 14.42 Period 29 1.335 1.776 2.357 3.119 4.116 5.418 7.114 9.317 12.17 15.86 Period 30 1.348 1.811 2.427 3.243 4.322 5.743 7.612 10.06 13.27 17.45 Period 40 1.489 2.208 3.262 4.801 7.040 10.29 14.97 Period 50 1.645 2.692 4.384 7.107 2.786 3.400 4.141 5.034 6.109 7.400 2.925 | 3.604 | 4.430 5.437 6.659 8.140 3.072 3.820 4.741 5.871 7.258 8.954 3.225 4.049 5.072 6.341 7.911 9.850 2.666 3.386 4.292 5.427 6.848 8.623 10.83 10.80 15.67 18.82 12.10 17.86 21.64 13.55 20.36 24.89 15.18 23.21 | 28.63 17.00 26.46 32.92 4.549 | 5.807 | 7.396 9.399 11.92 4.822 6.214 7.988 10.25 13.11 19.04 30.17 37.86 21.32 34.39 | 43.54 23.88 39.20 50.07 26.75 44.69 57.58 29.96 50.95 66.21 21.72 31.41 45.26 93.05 188.9 267.9 11.47 18.42 29.46 46.90 74.36 117.4 289.0 700.2 1,084 - Reference Future Value of Ordinary Annuity of $1 Periods 1% 2% 3% 4% 5% Period 1 1.000 1.000 1.000 1.000 Period 2 2.010 2.020 2.030 2.040 1.000 6% 1.000 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 8.286 8.583 8.892 9.214 9.549 9.369 9.755 10.16 10.58 11.03 10.46 10.95 11.46 12.01 12.58 2.050 2.060 3.030 3.060 3.091 3.122 3.153 3.184 4.060 4.122 4.184 4.246 4.310 4.375 5.101 5.204 5.309 5.416 5.526 5.637 6.152 6.308 6.468 6.633 6.802 6.975 7.214 7.434 7.662 7.898 8.142 8.394 9.897 7% 8% 9% 10% 12% 14% 15% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2.070 2.080 2.090 2.100 2.120 2.140 2.150 3.215 3.246 3.278 3.310 3.374 3.440 3.473 4.440 4.506 4.573 4.641 4.779 4.921 4.993 5.751 5.867 5.985 6.105 6.353 6.610 6.742 11.49 13.18 Period 11 Period 12 Period 13 Period 14 Period 15 11.57 12.68 12.17 12.81 13.49 14.21 Period 20 13.41 14.19 15.03 15.92 13.81 14.68 | 15.62 | 16.63 | 17.71 14.95 15.97 17.09 18.29 19.60 16.10 17.29 18.60 20.02 21.58 Period 16 17.26 18.64 20.16 21.82 23.66 Period 17 18.43 20.01 21.76 23.70 25.84 Period 18 19.61 21.41 23.41 25.65 28.13 Period 19 20.81 22.84 25.12 27.67 30.54 22.02 24.30 26.87 29.78 33.07 14.97 16.87 18.88 21.02 23.28 7.153 7.336 7.523 7.716 8.115 8.536 8.754 8.654 8.923 9.200 9.487 10.09 10.73 11.07 10.260 10.64 11.03 11.44 12.30 13.23 13.73 11.98 12.49 13.02 13.58 14.78 16.09 16.79 13.82 14.49 15.19 15.94 17.55 19.34 20.30 15.78 16.65 17.56 18.53 20.65 23.04 24.35 17.89 18.98 20.14 21.38 24.13 27.27 29.00 20.14 21.50 22.95 24.52 28.03 32.09 34.35 22.55 24.21 26.02 27.98 32.39 37.58 40.50 25.13 27.15 29.36 31.77 37.28 43.84 47.58 25.67 28.21 30.91 33.76 36.79 27.89 30.32 33.00 35.95 42.75 50.98 55.72 30.84 33.75 36.97 40.54 48.88 59.12 65.08 34.00 37.45 41.30 45.60 55.75 68.39 75.84 37.38 41.45 46.02 51.16 63.44 41.00 45.76 51.16 57.28 78.97 88.21 72.05 91.02 | 102.4 Period 21 Period 22 Period 23 23.24 25.78 28.68 31.97 35.72 24.47 27.30 30.54 34.25 38.51 25.72 41.43 39.99 43.39 44.87 50.42 56.76 64.00 49.01 55.46 62.87 71.40 81.70 104.8 118.8 92.50 120.4 137.6 28.85 32.45 36.62 47.00 53.44 60.89 69.53 79.54 104.6 138.3 159.3 Period 24 26.97 30.42 34.43 39.08 44.50 50.82 Period 25 28.24 32.03 36.46 41.65 47.73 54.86 58.18 66.76 76.79 88.50 63.25 73.11 84.70 98.35 118.2 158.7 184.2 133.3 181.9 212.8 Period 26 29.53 33.67 38.55 Period 27 44.31 51.11 30.82 35.34 40.71 47.08 | 54.67 59.16 68.68 79.95 93.32 109.2 150.3 208.3 | 245.7 63.71 Period 28 Period 29 32.13 37.05 42.93 49.97 58.40 33.45 38.79 45.22 52.97 62.32 68.53 73.64 Period 30 34.78 40.57 47.58 56.08 66.44 79.06 Period 40 48.89 60.40 75.40 95.03 120.8 154.8 Period 50 64.46 84.58 112.8 | 152.7 | 209.3 290.3 74.48 87.35 102.7 121.1 169.4 238.5 283.6 80.70 95.34 113.0 134.2 190.7 272.9 327.1 87.35 104.0 124.1 148.6 214.6 312.1 377.2 94.46 113.3 136.3 164.5 241.3 356.8 434.7 199.6 259.1 337.9 442.6 767.1 1,342 1,779 406.5 573.8 815.1 1,164 2,400 4,995 7,218