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.)
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).
(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
- imes
More info
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.. imes .)
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.)
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).
(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.)
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 10%
(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.)
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).
(Round your answer to one decimal place.)
The payback for Option 1 (refurbish current machine) is
years
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
Net Cash Outfows Year Amount Invested 0 1,400,000 1
Net Cash Inflows Annual Accumulated
2
5
7
rer to one decimal place.
The payback for Option 1 (refurbish current machine) is
years
Now complate tha paybeck schedule for Option 2 (purcheae). Net Cash Outflows Net Cash Infows Year Amount Invested Annual Accumulated 3,400,000
Ch 10
(Round yout
to one decimal place.)
The payback for Option 2 (purchase new machine) is
years
Net Cash Inffow
PV Factor i=10%)
Present Value
Year
Present value of each year's inflow (=u) 2 (n = 2) 3 (=u) (n = 4) 5 (g=u) 6 (9=u) (n = 7) (g=u) (6=u) 10 (n = 10) Total PV of cash inffows 0 Initial investment Net present value of the project