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More info Data table The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,200,000. 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 $3,200,000. A new machine would last 10 years and have no residual value. Year Refurbish Current Machine Purchase New Machine Year 1 $ 140,000 $ 1,800,000 Year 2 520,000 660,000 Year 3 520,000 380,000 240,000 Year 4 380,000 Print Done Year 5 100,000 240,000 Year 6 240,000 100,000 100,000 Year 7 240,000 1 Year 8 100,000 2 Year 9 240,000 240,000 240,000 3 Year 10 4 $ 1,680,000 $ 4,800,000 Total 5 6 7 8 Print Done /Round your answer to one dorimal nlara ) Next question lick the icon to view Present Value of $1 table.) 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 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. 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 $ 1,200,000 1 2 3 4 5 6 7 8 (Round your answer to one decimal place.) The payback for Option 1 (refurbish current machine) is 1 years. Now complete the payback schedule for Option 2 (purchase). Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated 0 $ 3,200,000 1 2 3 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. + = 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.) Net Cash PV Factor Present Years Inflow (i = 14%) Value Present value of each year's inflow: 1 2 3 4 (n = 1) (n = 2) (n = 3) (n = 4) (n = 5) (n = 6) (n = 7) 5 6 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.) Net Cash PV Factor Present Years Inflow (i = 14%) Value 1 2 3 = 4 Present value of each year's inflow: (n = 1) (n = 2) (n = 3) (n = 4) (n = 5) (n = 6) (n = 7) (n = 8) (n = 9) 5 6 7 8 KILLI 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.) - Profitability index Refurbish - Purchase . Requirement 2. Which option should Gilpin choose? Why? Review your answers in Requirement 1. Gilpin should choose because this option has a payback period, an ARR that is the other option, a NPV, and its profitability index is