Mandel 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 $1,000,000. 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 $4,800,000. A new machine would last 10 years and have no residual value.

Requirements

1. Compute the payback, the ARR, the NPV, and the profitability index of these two options.

2. Which option should Mandel choose? Why?

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 16%. (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). More info The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,000,000. 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 $4,800,000. A new machine would last 10 years and have no residual value. Data table Reference Reference Reference Reference Reference Future Value of Nrelinnou Annwibuef ed Reference Requirements 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. 2. Which option should Mandel choose? Why? 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). Mandel Manufacturing, Inc. has a \begin{tabular}{l|l|} 2 \\ 3 \\ 4 \\ 5 \\ 6 \\ 7 \\ 8 & \\ \hline \end{tabular} (Round your answer to one decimal place.) The payback for Option 1 (refurbish current machine) is Now complete the payback schedule for Option 2 (purchase). Mandel Manufacturing, Inc. has a (Click the icon to \begin{tabular}{|c|} 4 \\ 5 \\ 6 \\ 7 \\ 8 \\ 9 \\ 10 \end{tabular} (Round your answer to one decimal place.) The payback for Option 2 (purchase new machine) is years. Compute the ARR (accounting rate of return) for each of the options. 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.) Compute the NPV for each of the options. Begin with Option I (refurbish). (Enter the factors to three decimal places. XXXXX Use parentheses or a minus sign for a negative net present value.) Amount invested (Round your answer to one Average amount invested The payback for Option 2 ( f Average annual operating income Compute the ARR (accounti Present value of net cash inflows Refurbish Purchase = ARR =% =% (refurbish). (Enter the factors to three decimal places. X.XXX Use arentheses or a minus sign for a negative net present value.) 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.) Finally, compute the profitability index for each option. (Round to two decimal places X.XX.) \begin{tabular}{l|ll} & & =\begin{tabular}{c} Profitability \\ index \end{tabular} \\ Refurbish & & = \\ \hline Purchase & & = \end{tabular} Requirement 2. Which option should Mandel choose? Why? Review your answers in Requirement 1. Mandel should choose because this option has a payback period, an ARR that is Requirement 2. Which option should Mandel choose? Why? Review your answers in Requirement 1. Mandel should choose because this option has a payback period, an ARR that is the other option, a NPV, and its profitability Mandel Manufacturing, Inc. has a Mandel Manufacturing, Inc. has a Requirement 2. Which option should Mandel choose? Why? Review your answers in Requirement 1. Mandel should choose because this option has the othe index is Option 1, refurbish the current machine Se ment 2. Which option should Mandel choose? Why ur answers in Requirement 1. ould choose option has a the other of payback period, an ARR th NPV and its profita longer Require Review \} Mandel $ higher lower tion should Mandel choose? Why? zquirement 1. payback period, an ARR that is tion, a NPV, and its profitability