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\fReference Future Value of Ordinary Annuity of $1 Periods 1% 2% 3% 4% 5% 5% 7% 8% 9% 10% 14% 15% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 UI A WON 2.010 2.020 2.030 2.040 2.050 2.060 2.070 2.080 2.090 2.100 2.120 2.140 2.150 3.060 3.091 3.122 3.153 3.215 3.246 3.278 3.310 3.374 3.440 3.473 4.060 4.122 4.184 4.246 4.310 4.375 4.440 4.506 4.641 4.779 4.921 4.993 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105 6.353 6.610 6.742 6.308 6.468 6.802 6.975 7.153 7.336 7.523 7.716 8.115 8.536 8.754 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.487 10.09 10.73 11.07 8.583 8.892 9.214 9.549 9.897 10.260 10.64 11.03 11.44 12.30 13.23 13.73 9.755 10.16 10.58 11.03 11.49 11.98 12.49 13.02 13.58 16.09 16.79 10 10.46 10.95 11.46 12.01 12.58 13.18 13.82 14.49 15.19 15.94 17.55 19.34 20.30 11 11.57 12.17 12.81 13.49 14.21 14.97 15.78 16.65 17.56 18.53 20.65 23.04 24.35 12 12.68 13.41 14.19 15.03 15.92 16.87 17.89 18.98 20.14 21.38 24.13 29.00 13 13.81 14.68 15.62 16.63 17.71 18.88 20.14 21.50 22.95 24.52 28.03 32.09 34.35 14 14.95 15.97 17.09 18.29 19.60 21.02 22.55 24.2 27.98 32.39 37.58 40.50 15 16.10 17.29 18.60 20.02 21.58 23.28 25.13 27.15 31.77 37.28 43.84 47.58 16 17.26 18.64 20.16 21.82 23.66 27.89 30.32 33.00 35.95 42.75 50.98 55.72 17 20.01 21.76 25.84 28.21 30.84 33.75 36.97 40.54 59.12 65.08 18 19.61 21.41 23.41 25.65 28.13 30.91 34.00 37.45 41.30 45.60 55.75 68.39 75.84 19 20.81 22.84 25.12 30.54 33.76 37.38 51.16 63.44 78.97 88.21 24.30 26.87 29.78 33.07 36.79 41.00 45.76 57.28 72.05 91.02 102.4 21 23.24 25.78 28.68 31.97 35.72 39.99 44.87 50.42 56.76 64.00 81.70 104.8 118.8 22 27.30 30.54 34.25 38.51 43.39 49.01 55.46 62.87 71.40 92.50 120.4 137.6 23 25.72 28.85 32.45 41.43 53.44 60.89 79.54 104.6 138.3 159.3 Print DoneAlton Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view Present Value i (Click the icon to view additional information.) i Data Table - X Alton expects the following net cash inflows from the two options: ( Click the icon to view Present Value BEB(Click the icon to view the net cash flows.) E (Click the icon to view Future Value of Alton uses straight-line depreciation and requires an annual return of 12%. (Click the icon to view Future Value of Year Refurbish Current Purchase New Machine Machine Read the requirements. 1 $ 520,000 $ 1,670,000 Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. 2 380,000 490,000 3 300,000 410,000 Compute the payback for both options. Begin by completing the payback schedule for Option 1 (refurbish). 4 220,000 330,000 Net Cash Outflows Net Cash Inflows 5 140,000 250,000 Year Amount Invested Annual Accumulated i More Info - X 6 140,000 250,000 $ 1, 100,000 7 140,000 250,000 8 140,000 250,000 W N The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1, 100,000. If refurbished, Alton expects the machine to last CO 250,000 another eight years and then have no residual value. Option 2 is to replace the 10 250,000 A machine at a cost of $2,200,000. A new machine would last 10 years and have no residual value. Total $ 1,980,000 $ 4,400,000 Print Done Print DonePresent Value of $1 Alton expects the following net cash inflows from the two options: 20% (Click the icon to view the net cash flows.) Periods 1% 2% 4% 5% 6% 7% 8% 9% 0.893 0.870 0.862 0.847 0.833 Alton uses straight-line depreciation and requires an annual return of 12%. 0.990 0.980 0.971 0.962 0.952 0.943 0.909 0.980 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.641 0.609 0.579 0.889 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.961 0.924 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.519 0.497 0.476 0.437 0.402 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.567 years . 0.335 The payback for Option 1 (refurbish current machine) is 0.942 0.837 0.746 0.705 0.666 0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.813 0.711 0.665 0.623 0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.933 0.871 0.467 0.404 0.351 0.327 0.305 0.266 0.233 Now complete the payback schedule for Option 2 (purchase). 0.923 0.853 0.731 0.627 0.582 0.540 0.502 0.914 0.703 0.592 0.500 0.284 0.837 0.645 0.460 0.308 0.194 0.191 0.162 Net Cash Outflows Net Cash Inflows 0.905 0.676 0.614 0.463 0.422 0.527 0.475 0.429 0.388 0.350 0.237 0.215 0.195 0.162 0.135 Amount Invested Annual Accumulated 11 0.722 0.585 0.257 0.187 0.168 0.137 0.788 0.093 2,200,000 0.879 0.415 0.116 0.773 0.388 0.340 0.160 0.125 0.099 0.07 0.505 0.065 WN - 14 0.417 0.108 0.084 0.743 0.642 0.555 0.183 0.140 0.123 0.054 16 0.853 0.534 0.394 0.339 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.513 0.436 0.231 0.146 0.108 0.093 0.080 0.060 0.04 0.605 0.051 0.03 0.836 0.700 0.494 0.416 0.350 0.296 0.130 0.095 0.081 0.069 10 00 - O UT A 0.475 0.396 .331 0.277 0.164 0.116 0.083 0.070 0.060 0.031 0.686 0.570 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.149 0.104 0.073 0.061 0.051 0.037 0.026 0.359 0.294 0.242 0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022 21 0.660 22 0.803 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018 0.795 0.634 0.406 0.326 0.262 0.211 0.074 0.049 0.040 0.033 0.022 0.015 Print DoneThe payback for Option 2 (purchase new machine) is years. Compute the ARR (accounting rate of return) for each of the options. / = ARR Returbish / = % Purchase / = % 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.) Net Cash PV Factor Present Years Inow (i = 12%) Value Present value of each yeafs inow: 1 (n = 1) 2 (n = 2) 3 (n = 3) 4 (n = 4) Alton Manufacturing, Inc. has a manufacturing machine that needs attention. i (Click the icon to view additional information.) Present Value of Ordinary Annuity of $1 Alton expects the following net cash inflows from the two options: 4% 5% 6% 7% 8% 9% 12% 15% 16% 18% 20% Periods 1% 2% 3% 0.833 EEE(Click the icon to view the net cash flows.) 0.990 0.952 0.943 0.935 0.926 1.913 1.783 1.690 1.647 1.528 Alton uses straight-line depreciation and requires an annual return of 12%. 1.736 1.566 2.941 2.884 2.723 2.673 2.624 2.487 2.322 3.902 3.808 3.717 3.630 3.465 3.387 3.240 3.170 3.037 2.914 2.855 2.798 2.690 2.589 3.993 3.890 3.791 3.605 3.433 3.352 3.274 2.991 4.853 4.713 3.889 4 (n = 4) 5.795 5.601 5.417 3.784 4.160 3.812 3.605 (n = 5) 6.728 6.472 6.230 5.786 5.582 5.389 5.206 5.033 5 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.487 3.83 7.325 7.020 6.733 4.946 4.772 1.60 6 (n = 6) 3.566 8.162 7.786 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.192 8.983 8.530 7.722 7.024 6.710 6.145 5.650 9.471 7.360 7 (n = 7) 9.253 8.760 8.306 7.887 7.499 6.805 6.495 5.453 5.234 5.029 9.787 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.660 5.421 4.793 8 11.255 10.575 9.954 9.385 8.853 8.358 7.487 7.103 6.424 5.842 5.583 5.342 4.910 Total PV of cash inflows 13 12.134 11.348 10.635 9.986 9.394 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.367 6.628 6.002 5.468 Initial investment 15 13.865 12.849 11.938 10.380 9.712 8.061 6.811 6.142 5.575 16 14.718 13.578 12.561 11.652 10.838 9.447 8.851 8.313 7.824 6.974 6.265 5.954 5.162 Net present value of the project 17 15.562 14.292 11.274 10.477 9.763 9.122 7.120 6.373 5.749 6.128 5.818 5.273 Now compute the NPV for Option 2 (purchase). (Enter the factors to three decimal places. X.XXX. Use pare 18 16.398 11.690 9.372 8.756 B.201 7.250 11.158 9.604 8.950 3.365 7.366 3.550 6.198 5.316 19 17.226 6.259 5.929 5.353 4.870 Net Cash PV Factor Present 20 18.046 16.351 14.877 11.470 9.129 8.514 7.469 6.623 12.821 11.764 10.017 8.649 7.562 6.687 6.312 5.973 5.384 4.89 Value 21 18.857 17.011 15.415 14.029 Inflow (i = 12%) 14.451 12.042 11.061 10.201 9.442 3.772 3.743 6.359 6.011 5.410 Years 22 19.660 17.658 5.432 23 20.456 16.444 10.371 8.883 3.792 Present value of each year's inflow: 14.857 6.39 18.292 9.580 7.718 4.925 (n = 1)8 (n = 8) 9 (n = 9) 10 (n = 10) Total PV of cash inflows 0 Initial investment Net present value of the project Finally, compute the profitability index for each option. (Round to two decimal places X.XX.) = Profitability index Refurbish Purchase Requirement 2. Which option should Alton choose? Why? Review your answers in Requirement 1. Alton should choose because this option has a payback period, an ARR that is the other option, a NPV, and its profitability index is V