Oudoor Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio fumiture division plans to retire in 2 years. The manager receives a bonus based on the division's ROI, which is Currently 8% One of the machines that the patio fumiture division uses to manufacture the furniture is rather old, and the manager must decide whether to replace it. (Click the icon to view information on the replacement decision.) Read the requirements. Requirement 1. Should Oudoor Corporation replace the machine? Why or why not? Oudoor would be better off if they did replace the machine. Its cost of capital and the IRR of the investment indicate that this is a positive net present value project. Requirement 2. Assume that investment" is defined as average nel long-term assels (that is, after depreciation) during the year. Compute the project's ROI for each of its first 5 years. If the patio fumiture manager is interested in maximizing his bonus, would he replace the machine before he retires? Why or why not? Begin by computing the project's ROI for each of its first five years. Select the formula to compute ROI, then enter the amounts for year 1 and calculate the project's ROI. Then compute the ROI for the rest of the remaining years. (Enter the ROI as a percent rounded to two decimal places. X.XX%) Measure of income Measure of investment ) = ROI Year 1 % Requirements + = More Info The new machine would cost $20,000 and would last 10 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value. Oudoor uses straight-line depreciation for all assets. The new machine, being new and more efficient, would save the company $3,000 per year in cash operating costs. The only difference between cash flow and net income is depreciation. The intemal rate of return of the project is approximately 8%. Oudoor Corporation's weighted-average cost of capital is 8%. Oudoor is not subject to any income taxes. 1. Should Oudoor Corporation replace the machine? Why or why not? 2. Assume that investment is defined as average net long-term assets (that is, after depreciation) during the year. Compute the project's ROI for each of its first 5 years. If the patio fumiture manager is interested in maximizing his bonus, would he replace the machine before he relires? Why or why not? 3. What can Oudoor do to entice the manager to replace the machine before retiring? Print Done Print Done Choose from any list or enter any number in the input fields and then click Check Answer. 2 3 parts remaining Clear All Check