Gammon Manufacturing, Inc. has a manufacturing machine that needs attention.

$($i$)($Click the icon to view additional information.$)$

Gammon expects the following net cash inflows from the two options:

Fifl $($Click the icon to view the net cash flows.$)$

Gammon uses straight$-$line depreciation and requires an annual return of $10\%.$

E$)($Click the icon to view Present Value of $$1$ table.$)$

e

$($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.$)$

Kequirement $1.$ Compute the payback, the Arrk, the NrV$,$ and the prontabily incex ot these two options.

Compute the payback for both options. Begin by completing the payback schedule for Option $1($refurbish$).$

$($Round your answer to one decimal place.$)$

The payback for Option $1($refurbish current machine$)$ is

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

$($Round your answer to one decimal place.$)$

The payback for Option $2($purchase new machine$)$ is

years.

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.$)$Data table

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The company is considering two options. Option $1$ is to refurbish the current

machine at a cost of $$1,400,000.$ 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 $$3,400,000.$ A new machine would last $10$ years and have no

residual value.

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

Requirement $2.$ Which option should Gammon choose? Why?

Review your answers in Requirement $1.$

Gammon should choose

$]$ because this option has a

$]$ payback period, an ARR that is

the other option, a

NPV$,$ and its profitability index isGammon Manufacturing, Inc. has a manufacturing machine that needs attention.

$($i$)($Click the icon to view additional information.$)$

Gammon expects the following net cash inflows from the two options:

Fifl $($Click the icon to view the net cash flows.$)$

Gammon uses straight$-$line depreciation and requires an annual return of $10\%.$

E$)($Click the icon to view Present Value of $$1$ table.$)$

e

$($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.$)$

Kequirement $1.$ Compute the payback, the Arrk, the NrV$,$ and the prontabily incex ot these two options.

Compute the payback for both options. Begin by completing the payback schedule for Option $1($refurbish$).$

$($Round your answer to one decimal place.$)$

The payback for Option $1($refurbish current machine$)$ is

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

$($Round your answer to one decimal place.$)$

The payback for Option $2($purchase new machine$)$ is

years.

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.$)$