i attached files with the instructions to the work!

i attached files with the instructions to the work!


Investment Project Scenario Pizza Palace is a pizza restaurant known for its posh décor and its brick-oven pizza. Pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000. Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. Option 2 is to replace the current ovens. New ovens would last 8 years and have no residual value. 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% Requirements: 1. Calculations: Please use the provided Excel Template to calculate the payback, the ARR, the NPV, and profitability index for both options. (80 points) 2. Decision Write up: On a Word Document write (in 100 words or more) which option the company should choose and why. (70 points) a. Please include the following information in your decision write up: i. What is payback period? Based on payback period alone which option should the company choose? Why? ii. What is the Accounting Rate of Return (ARR)? Based on ARR alone which option should the company choose? Why? iii. What is Net Present Value (NPV)? Based on NPV alone which option should company choose? Why? iv. What is the profitability index? Based on profitability index alone which option should the company choose? Why? v. Based on all the calculations which option would you recommend the company choose? Why? Sheet1 Name: Payback: Refurbish Current Machine Net Cash Outflows Refurbish Current MachineNet Cash Inflows Refurbish Current Machine YearAmount InvestedAnnualAccumulated 0 1 2 3 4 5 6 7 8 Payback for Refurbishing the current machine =Years +÷=ERROR:#DIV/0!Years Purchase New Machine Net Cash Outflows Purchase New MachineNet Cash Inflows Purchase New Machine YearAmount InvestedAnnualAccumulated 0 1 2 3 4 5 6 7 8 9 10 Payback for Purchasing a new machine =Years +÷=ERROR:#DIV/0!Years Accounting Rate of Return (ARR): Refurbishing Current Machine Average Annual Income from Capital Investment: Total net cash inflows during the operating life of the asset Less: Total depreciation during the operating life of the asset (Cost - Residual Value) Total operating income during operating life0 Divided by: Asset's operating life in years Average annual operating income from assetERROR:#DIV/0! Average amount invested:=+÷=ERROR:#DIV/0! ARR of Refurbishing Current Machine=÷=ERROR:#DIV/0! Purchasing New Machine Average Annual Income from Capital Investment: Total net cash inflows during the operating life of the asset Less: Total depreciation during the operating life of the asset (Cost - Residual Value) Total operating income during operating life0 Divided by: Asset's operating life in years Average annual operating income from assetERROR:#DIV/0! Average amount invested:=+÷=ERROR:#DIV/0! ARR of Purchasing New Machine=÷=ERROR:#DIV/0! Net Present Value Refurbishing Current Machine Years Present value of each year's inflow:Net Cash inflowPresent Value Factor**Present Value** See table below 1(n = 1)0 2(n = 2)0 3(n = 3)0 4(n = 4)0 5(n = 5)0 6(n = 6)0 7(n = 7)0 8(n = 8)0 Total PV of cash inflows0 0Initial Investment Net Present Value of Refurbishing Current Machine0 Purchasing New Machine Years Present value of each year's inflow:Net Cash inflowPresent Value Factor**Present Value** See table below 1(n = 1)0 2(n = 2)0 3(n = 3)0 4(n = 4)0 5(n = 5)0 6(n = 6)0 7(n = 7)0 8(n = 8)0 9(n = 9)0 10(n = 10)0 Total PV of cash inflows0 0Initial Investment Net Present Value of Purchasing New Machine0 Profitability Index: Project:Present value of net cash inflows÷Initial Investment=Profitability Index Refurbish Current MachineERROR:#DIV/0! Purchase New machineERROR:#DIV/0!