I have attacheed some of the problem but cant fingure the 2nd part pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000 (initial investment). Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. The average annual income from refurbishing the ovens is $183,333.33. Refurbishing the ovens will have no salvage value. Option 2 is to replace the current ovens. New ovens would last 8 years and have no salvage value. The average annual income from buying a new oven is $143,750. Pizza Palace expects the following net cash inflows from the two options: Year Refurbish Current Ovens Purchase New Ovens 1 $600,000 $800,000 2 $500,000 $600,000 3 $400,000 $300,000 4 $300,000 $200,000 5 $200,000 $100,000 6 $100,000 $50,000 7 $50,000 8 $50,000 Pizza Palace uses straight-line depreciation and requires an annual return of 10% Refurbish Current Machine Net Cash Outflows Refurbish Current Machine Net Cash Inflows Refurbish Current Machine Year Net Cash Flows per Year Cumulative Net Cash Flows 0 0 0 **Enter the year 0 net cash flow as a negative 1 600000 600000 2 500000 1100000 3 400000 1500000 4 300000 1800000 5 200000 2000000 6 100000 2100000 7 50000 2150000 8 50000 2200000 NPV $1,670,397.21 3870397.206 Total Full Year(s) Cumulative Net Cash Flow in Year 2 Total Cash Inflow Year 2 Payback for Refurbishing the current machine = 1 + 400000 ÷ 500000 #### 1.8 Years

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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I have attacheed some of the problem but cant fingure the 2nd part

pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000 (initial investment). Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. The average annual income from refurbishing the ovens is $183,333.33. Refurbishing the ovens will have no salvage value. Option 2 is to replace the current ovens. New ovens would last 8 years and have no salvage value. The average annual income from buying a new oven is $143,750. Pizza Palace expects the following net cash inflows from the two options:

Year	Refurbish Current Ovens	Purchase New Ovens
1	$600,000	$800,000
2	$500,000	$600,000
3	$400,000	$300,000
4	$300,000	$200,000
5	$200,000	$100,000
6	$100,000	$50,000
7		$50,000
8		$50,000

Pizza Palace uses straight-line depreciation and requires an annual return of 10%

Refurbish Current Machine
	Net Cash Outflows Refurbish Current Machine	Net Cash Inflows Refurbish Current Machine
Year	Net Cash Flows per Year	Cumulative Net Cash Flows
0	0	0	**Enter the year 0 net cash flow as a negative
1	600000	600000
2	500000	1100000
3	400000	1500000
4	300000	1800000
5	200000	2000000
6	100000	2100000
7	50000	2150000
8	50000	2200000
NPV	$1,670,397.21	3870397.206
		Total Full Year(s)		Cumulative Net Cash Flow in Year 2		Total Cash Inflow Year 2
Payback for Refurbishing the current machine	=	1	+	400000	÷	500000	####	1.8	Years

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