P-M:9-37B Using payback, ARR, and NPV with unequal cash flows (Learning Objectives 2, 4) Hughes...
90.2K
Verified Solution
Link Copied!
Question
Accounting
P-M:9-37B Using payback, ARR, and NPV with unequal cash flows (Learning Objectives 2, 4) Hughes Manufacturing, Inc. has a manufacturing machine that needs attention. The company is considering two options. Option 1 is to refurbish the current machine at a cost of $2,600,000. If refurbished, Hughes 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 $3,800,000. A new machine would last 10 years and have no residual value. Hughes expects the following net cash inflows from the two options: Year Refurbish Current Machine Purchase New Machine 1 2 3 4 $ 1,760,000 440,000 360,000 280,000 200,000 200,000 200,000 200,000 $ 2,970,000 490,000 410,000 330,000 250,000 250,000 250,000 250,000 5 6 7 8 00 9 9 10 Total 250,000 250,000 $ 5,700,000 $ 3,640,000 Hughes uses straight-line depreciation and requires an annual return of 10%. Requirements 1. Compute the payback, the ARR, the NPV, and the profitability index of these two options. 1. Refurbish $257,880 NPV; Purchase 2.8 years payback 2. Which option should Hughes choose? Why
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
