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 $1,400,000. 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 $4,200,000. A new machine would last 10 years and have no residual value Year $ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Refurbish Current Machine $ 410,000 $ 500,000 370,000 240,000 110,000 110,000 110,000 110,000 Purchase New Machine 3,540,000 610,000 480.000 350,000 220,000 220,000 220,000 220,000 220,000 220,000 Year 10 $ Total 1,960,000 $ 6,300,000 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 $ 1,400,000 410000 410000 500000 910000 370000 1280000 0 1 2 3 4 240000 1520000 5 1630000 6 110000 110000 110000 110000 7 1740000 1850000 1960000 8 (Round your answer to one decimal place.) The payback for Option 1 (refurbish current machine) is years, Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated 0 $ 4,200,000 1 2 3 4 5 6 7 8 9 10 The payback for Option 2 (purchase new machine) is years. Compute the ARR (accounting rate of return) for each of the options. ARR % Refurbish Purchase . % Compute the NPV for each of the options. Begin with Option 1 (refurbish). (Enter the factors to three decimal places. X.XXX. Net Cash PV Factor (i = 16%) Present Value Years Inflow 1 2 4 5 Present value of each year's inflow: (n = 1) (n=2) (n = 3) (n = 4) (n = 5) (n = 6) (n = 7) (n = 8) Total PV of cash inflows Initial investment 6 7 8 0 Net present value of the project Now compute the NPV for Option 2 (purchase). (Enter the factors to three decimal places. X.XXX. Use Net Cash PV Factor Present Years Inflow (i = 16%) Value 1 1 N 3 4 5 6 Present value of each year's inflow. (n = 1) (n = 2) (n = 3) (n = 4) (n = 5) (n = 6) (n = 7) (n = 8) (n = 9) (n = 10) Total PV of cash inflows Initial investment Net present value of the project 7 8 9 DOM! DOLLI 10 0 Finally, compute the profitability index for each option. (Round to two decimal places X.XX.) - = Profitability index Refurbish Purchase Requirement 2. Which option should Mandel choose? Why? Review your answers in Requirement 1. Mandel should choose V because this option has a payback period, an ARR that is the other option, a V NPV, and its profitability index is