Gammon Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Gammon expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gammon uses straight-line depreciation and requires an annual return of 14%. -C (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,400,000. If refurbished, Gammon 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 $4,800,000. A new machine would last 10 years and have no residual value. Refurbish Current Purchase New Year Machine Machine Year 1 $ 1,060,000 $ 3,900,000 Year 2 800,000 880,000 Year 3 580,000 660,000 Year 4 360,000 440,000 Year 5 140,000 220,000 Year 6 140,000 220,000 Year 7 140,000 220,000 Year 8 140,000 220,000 Year 9 220,000 220,000 Year 10 $ 3,360,000 $ 7,200,000 Total Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. Compute the payback for both options. Begin by completing the payback schedule for Option 1 (refurbish). Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated 0 $ 2,400,000 1 $ 1,060,000 $ 1,060,000 2 800,000 1,860,000 3 580,000 2,440,000 4 360,000 2,800,000 5 140,000 2,940,000 6 140,000 3,080,000 7 140,000 3,220,000 8 140,000 3,360,000 (Round your answer to one decimal place.) Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated 0 $ 4,800,000 1 2 $ 3,900,000 $ 3,900,000 880,000 4,780,000 3 660,000 5,440,000 4 440,000 5,880,000 56 N 220,000 6,100,000 220,000 6,320,000 7 220,000 6,540,000 8 220,000 6,760,000 9 220,000 6,980,000 10 220,000 7,200,000 Compute the ARR (accounting rate of return) for each of the options. Average annual operating income Average amount invested Refurbish Purchase || ARR % %