Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options.

The payback for Option 1 (refurbish current machine) is

years.

Now complete the payback schedule for Option 2 (purchase).

The payback for Option 2 (refurbish current machine) is

years.

Compute the ARR (accounting rate of return) for each of the options.

	Average annual operating income		Average amount invested	=	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. Use parentheses or a minus sign for a negative net present value.)

Now compute the NPV for Option 2 (purchase). (Enter the factors to three decimal places. X.XXX. Use parentheses or a minus sign for a negative net present value.)

Net present value of the project

Finally, compute the profitability index for each option. (Round to two decimal places X.XX.)

	Present value of net cash inflows		Initial investment	=	Profitability index
Refurbish				=
Purchase				=

(Click the icon to view Prese Click the icon to view Pres Joslin Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Joslin expects the following net cash inflows from the two options: Click the icon to view the net cash flows.) Joslin uses straight-line depreciation and requires an annual return of 16%. (Click the icon to view Futur (Click the icon to view Futur - Data table More info Year Refurbish Current Purchase New Machine Machine $ 1,380,000 $ 660,000 460,000 740,000 Year 1 The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,000,000. If refurbished, Joslin 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 $3,200,000. A new machine would last 10 years and have no residual value. Year 2 Year 3 340,000 620,000 Year 4 220,000 500,000 380.000 Year 5 100,000 100,000 Year 6 380,000 Print Done Year 7 100,000 380,000 Year 8 100,000 Year 9 380,000 380,000 380,000 Year 10 $ 2,800,000 $ 4,800,000 Total Print Done