Question

I will glady give a thumbs up to whoever can answer this question for me. Thank you.

Almendarez Corporation is considering the purchase of a machine that would cost $110,000 and would last for 4 years. At the end of 4 years, the machine would have a salvage value of $16,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $30,000. The company requires a minimum pretax return of 12% on all investment projects (Ignore income taxes.) Click here to view Exhibit 128-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.) Multiple Choice 0 $(8,714) 0 $17634 0 $(10,000) 0 $(24,061)

Answer 1

Net Present Value (NPV) of the Project

Year	Annual cash flows ($)	Present Value Factor (PVF) at 12.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]
1	30,000	0.893	26,790
2	30,000	0.797	23,910
3	30,000	0.712	21,353
4	46,000 [30,000 + 16,000]	0.636	29,233
TOTAL		101,286

Net Present Value (NPV) of the Investment = Present Value of annual cash inflows – Initial Investment

= $101,286 - $110,000

= -$8,714 (Negative NPV)

“Hence, the Net Present Value (NPV) of the Project will be -$8,714 (Negative NPV)”

NOTE    

The Formula for calculating the Present Value Factor is [1/(1 + r)n], Where “r” is the Discount/Interest Rate and “n” is the number of years.