P26-32A Using payback, ARR, and NPV with unequal cash flows Henderson 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 $1,200,000. If refurbished, 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. Henderson expects the following net cash inflows from the two options: Refurbish Current Machine Purchase New Year Machine 3,780,000 510,000 440,000 370,000 300,000 300,000 300,000 300,000 300,000 300,000 $ 6,900,000 350,000 340,000 270,000 200,000 4 130,000 130,000 130,000 130,000 8 10 Total1,680,000 Henderson uses straight-line depreciation and requires an annual return of 1 Requirements 1. Compute the payback, the ARR, the 2. Which option should Henderson choose? Why? 0%. NPV, and the profitability index of these two options. lun for NPV and IRR