Question attached

An Introduction:
The selection among the two options such as purchasing of new backhoes and overhauling of old backhoes is based on the different techniques of the capital planning such as IRR, payback, NPV and Profitability index. The NPV method states that the proposal with the positive NPV should be chosen and if both the projects are having surplus NPV then the proposal with the higher NPV value should be chosen (Thompson, Jayne 2021). This is the most important technique of the capital appraisal. In addition to this the IRR is the percentage of return at which the current amount of the cash incoming is equal to the current amount of cash outflows and the proposal or investment with the higher IRR is accepted and the proposal is accepted when the IRR is higher than the cost of capital. The profitability index of the project is calculated by dividing the current value of cash inflows from the current worth of cash outflows and the proposal with the higher profitability index is accepted as it states that the particular project is having sufficient cash inflows to cover the cash outlays. Moreover, the payback period is also important and simple method of capital appraisal and the project with the lower payback period is accepted as it states that the proposal will take less period to compensate the cash investment from the cash inflows of the project
Analysis of the given case study
In the given case study the entity is considering two options i.e. purchasing of new backhoes or repairing the old backhoes. The valuation of the two option is based on the different techniques such as NPV, IRR, profitability index and payback period. The analysis performed of the two options is as below:
Option 1: Buying new Backhoes
    Particulars
    Year 0
    1st Year
    2nd Year
    3rd Year
    4th Year
    5th Year
    6th Year
    7th Year
    8th Year
    Acquisition value (net) (200,000-42,000)
     (158,000)
     
     
     
     
     
     
     
     
    Cash inflows
     
     43,900
     43,900
     43,900
     43,900
     43,900
     43,900
     43,900
     43,900
    Salvage value
     
     
     
     
     
     
     
     
     90,000
    Net cash flows
     (158,000)
     43,900
     43,900
     43,900
     43,900
     43,900
     ...