Question 1: Alton 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 $2,200,000. If refurbished, Alton expects the machine to last another 8 years and then have no residual value. Option 2 is to replace the machine at a cost of $3,200,000. A new machine would last 10 years and have no residual value. Alton expects the following net cash inflows from the two options: Year Refurbish Current Purchase New Machine Machine 2.080.000 $ 2.160.000 250,000 410.000 200,000 360,000 150,000 310,000 260.000 100.000 260.000 100,000 260.000 100,000 260.000 260.000 260,000 100,000 3.080,000 $ 4.800,000 Total Alton uses straight-line depreciation and requires an annual return of 12%. Present Value of $1 Periods 1 0 20% 0.833 0.694 0.579 0.482 0.402 1% .990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 5% 6% 0.952 0.943 0.9070890 0.864 0.840 0.823 0.792 0.784 0.747 0.746 0.705 0.711 0.665 0.677 0.627 0.645 0.592 0.614 0.558 0.585 0.527 0.557 0.497 0.530 0.469 7% 8% 9% 10% 0.935 0.926 0.917 0.909 0.873 0.8570.8420.826 0.816 0.794 0.772 0.751 0.763 0.735 0.708 0.683 0.713 0.681 0.650 0.621 0.666 0.630 0.596 0.564 0.623 0.583 0.547 0.513 0.5820.540 0.502 0.467 0.5440.500 0.460 0.424 0.508 0.463 0.422 0.386 0.475 0.429 0.388 0.350 0.444 0.397 0.356 0.319 0.415 0.368 0.326 0.290 12% 14% 0.893 0.877 0.797 0.769 0.712 0.675 0.636 0.592 0.567 0.519 0.507 0.456 0.452 0.400 0.4040.351 0.361 0.308 0.322 0.270 0.287 0.237 0.257 0.208 0229 0.182 15% 16% 0.870 0.862 0.756 0.743 0.658 0.641 0.572 0.552 0.497 0.476 0.432 0.410 0.376 0.354 0.327 0.305 0.284 0.263 0.2470 227 0.215 0.195 0.187 0.168 0.163 0.145 18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.162 13 0.093 8% Periods 1 0 coWN 1% 2% .990 0.980 1.970 1942 2.9412884 3.902 3808 4.853 4.713 5.795 5.601 6.728 6.472 7.652 7.325 8.566 8.162 9.471 8.983 10.368 9.787 11.255 10.575 12.134 11.348 13.004 12.106 13.865 12.849 3% 4% 5% 0.971 0.9620.952 1.9131886 1.859 2 8292.775 2.723 3.717 3.630 3.546 4.580 4.452 4.329 5.417 5242 5.076 6230 6.002 5.786 7.020 6.733 6.463 7.786 7.435 7.108 8.530 8.111 7.722 9.2538.760 8.306 9.954 9.3858.863 10.6359.9869.394 11 296 10.563 9.899 11.938 11.118 10 380 Present Value of Annuity of $1 6% 7% 9% 10% 12% 14% 15% 0.943 0.935 0.926 0.917 0.9090.893 0.877 0.870 1833 1808 1.783 1.759 1.736 16901.647 1.626 2.673 2.624 2.577 2.531 2.487 240223222283 3.465 | 3.387 3.3123 240 3.170 3037 2914 2.855 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.352 4.917 4.767 4.623 4.4864.355 4.111 3.889 3.784 5.582 5.389 5.206 5.033 4.868 4.564 4 288 4.160 6.210 5.971 5.747 5.535 5335 4.968 4.639 4.487 6.802 6515 6.247 5.995 5759 5328 4.946 4.772 7.360 7.024 6.710 6.418 6.145 5.6505216 5.019 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.234 8.384 7.943 7.536 7.161 68146.194 5.660 5.421 8.853 8.358 7.9047.487 7.103 6.42458425.583 9.295 8.745 8.2447.786 7.3676.6286.002 5.724 9.712 9.108 8.559 8.0617.606 6.811 6.142 5.847 16% 0.862 1.605 2246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 20% 0.833 1.528 2.106 2589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4439 4533 4.611 4.675 13 14 15 Requirements 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options 2. Which option should Alton choose? Why