Mandel 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 1,100,000. If refurbished, Mandel expects the machine to last another eight years and then have no residual value. Option 2 is to replace the machine at a cost of2,200,000. A new machine would last 10 years and have no residual value. Mandel expects the following net cash inflows from the two options:

Year Refurbish Current Machine Purchase New Machine
1 280,000260,000
2 500,000740,000
3 380,000620,000
4 260,000500,000
5 140,000380,000
6 140,000380,000
7 140,000380,000
8 140,000380,000
9 380,000
10380,000

Mandel uses straight-line depreciation and requires an annual return of 16