list O Question 1 O Question 2 K Gilpin Manufacturing, Inc. has a manufacturing machine that needs attention. i (Click the icon to view additional information.) Gilpin expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gilpin uses straight-line depreciation and requires an annual return of 14%. 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 (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. Year Amount Invested Net Cash Inflows Annual Accumulated Data table 0 $ 1,300,000 1 520,000 520,000 Refurbish Current 2 410000 930000 Year Machine Purchase New Machine 3 340000 1270000 Year 1 $ 520,000 $ 780,000 4 270000 1540000 Year 2 410,000 410,000 5 200000 1740000 Year 3 340,000 340,000 6 200000 1940000 Year 4 270,000 270,000 7 200000 2140000 Year 5 200,000 200,000 8 200000 2340000 Year 6 200,000 200,000 (Round your answer to one decimal place.) Year 7 200,000 200,000 Year 8 200,000 200,000 The payback for Option 1 (refurbish current machine) is 6.0 years. Year 9 200,000 Now complete the payback schedule for Option 2 (purchase). 200,000 Year 10 Net Cash Outflows Year Amount Invested Net Cash Inflows Annual 2,340,000 $ 3,000,000 Total Accumulated 0 $ 1,500,000 1 Print Done More info The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,300,000. If refurbished, Gilpin 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 $1,500,000. A new machine would last 10 years and have no residual value. Print Done Question list Question 1 Question 2 K Gilpin Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Gilpin expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gilpin uses straight-line depreciation and requires an annual return of 14%. The payback for Option 1 (refurbish current machine) is 6.0 years. Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Year Amount Invested Net Cash Inflows Annual Accumulated 0 $ 1,500,000 1 2 3 4 5 6 7 8 9 10 (Round your answer to one decimal place.) The payback for Option 2 (purchase new machine) is years. Compute the ARR (accounting rate of return) for each of the options. Refurbish Purchase ARR % % (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. Question list O Question 1 Question 2 K Gilpin Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Gilpin expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gilpin uses straight-line depreciation and requires an annual return of 14%. Refurbish Purchase = ARR % % (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. 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 Years Inflow (i = 14%) Present Value Present value of each year's inflow: 1 (n = 1) 2 (n = 2) 3 (n = 3) 4 (n = 4) 5 (n = 5) 6 (n = 6) 7 (n = 7) 8 (n = 8) Total PV of cash inflows 0 Initial investment Net present value of the project 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.) Present Net Cash PV Factor Years Inflow (i = 14%) Value Drocent value of nach unar's inflow Question list Question 1 Question 2 K Gilpin Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Gilpin expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gilpin uses straight-line depreciation and requires an annual return of 14%. TULGI I V VI GAit inuw 0 Initial investment Net present value of the project (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. 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 Cash PV Factor Present Years Inflow (i = 14%) Value Present value of each year's inflow: 1 (n = 1) 2 (n = 2) 3 (n = 3) 4 (n = 4) 5 (n = 5) 6 (n = 6) 7 (n = 7) 8 (n = 8) 9 (n = 9) 10 (n = 10) Total PV of cash inflows 0 Initial investment Net present value of the project Gilpin Manufacturing, Inc. has a manufacturing machine that needs attention. (Click the icon to view additional information.) Gilpin expects the following net cash inflows from the two options: (Click the icon to view the net cash flows.) Gilpin uses straight-line depreciation and requires an annual return of 14%. (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. Present value of each year's inflow: 1 (n = 1) 2 (n = 2) 3 (n = 3) 4 (n = 4) 5 (n = 5) 6 (n = 6) 7 (n = 7) 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.) Refurbish Purchase Requirement 2. Which option should Gilpin choose? Why? Review your answers in Requirement 1. Gilpin should choose = Profitability index because this option has a payback period, an ARR that is the other option, a NPV, and its profitability index is