{"id":188824,"date":"2025-02-07T10:15:04","date_gmt":"2025-02-07T10:15:04","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=188824"},"modified":"2025-02-07T10:15:06","modified_gmt":"2025-02-07T10:15:06","slug":"almendarez-corporation-is-considering-the-purchase-of-a-machine-that-would-cost-240000-and-would-last-for-10-years","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/07\/almendarez-corporation-is-considering-the-purchase-of-a-machine-that-would-cost-240000-and-would-last-for-10-years\/","title":{"rendered":"Almendarez Corporation is considering the purchase of a machine that would cost $240,000 and would last for 10 years"},"content":{"rendered":"\n<p>Almendarez Corporation is considering the purchase of a machine that would cost $240,000 and would last for 10 years. At the end of 10 years, the machine would have a salvage value of $21,500. By reducing labor and other operating costs, the machine would provide annual cost savings of $37,000. The company requires a minimum pretax return of 10% on all investment projects. (Ignore income taxes.)<\/p>\n\n\n\n<p>Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.<\/p>\n\n\n\n<p>The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)<\/p>\n\n\n\n<p>$(130,000)<\/p>\n\n\n\n<p>$13,256<\/p>\n\n\n\n<p>$(4,336)<\/p>\n\n\n\n<p>$(19,683)<\/p>\n\n\n\n<p>A company has provided the following data concerning a proposed project (Ignore income taxes.):<\/p>\n\n\n\n<p>Initial investment $ 10,000<br>Annual cost savings $ ?<br>Salvage value $ 0<br>Life of the project 8 years<br>Discount rate 14 %<br>Net present value $ 1,300<br>Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.<\/p>\n\n\n\n<p>The annual cost savings must be closest to: (Round your intermediate calculations to 3 decimal places.)<\/p>\n\n\n\n<p>$1,875<\/p>\n\n\n\n<p>$4,024<\/p>\n\n\n\n<p>$3,704<\/p>\n\n\n\n<p>$2,436<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/02\/image-146.png\" alt=\"\" class=\"wp-image-188825\"\/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/02\/image-147.png\" alt=\"\" class=\"wp-image-188826\"\/><\/figure>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\"><strong>The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n<p>To solve both of these questions, we need to calculate the <strong>Net Present Value (NPV)<\/strong> of the proposed projects. Let&#8217;s break down both situations and find the correct answers step by step.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">First Question: Almendarez Corporation\u2019s Machine Purchase<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">Given:<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Initial investment = $240,000<\/li>\n\n\n\n<li>Salvage value = $21,500<\/li>\n\n\n\n<li>Annual cost savings = $37,000<\/li>\n\n\n\n<li>Life of the machine = 10 years<\/li>\n\n\n\n<li>Required rate of return = 10% (discount rate)<\/li>\n\n\n\n<li>We need to find the net present value (NPV) of this investment.<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\">Step 1: Use the <strong>Present Value of Annuities<\/strong> formula to find the NPV.<\/h4>\n\n\n\n<p>The formula for NPV is:<\/p>\n\n\n\n<p>[<br>NPV = \\text{Initial Investment} + \\left( \\text{Annual Savings} \\times \\text{Present Value Factor for Annuity} \\right) + \\left( \\text{Salvage Value} \\times \\text{Present Value Factor for a Single Sum} \\right)<br>]<\/p>\n\n\n\n<p><strong>Present Value Factor for Annuity (PVA)<\/strong> for 10 years at 10% can be found using Exhibit 13B-1. It is 6.14457.<br><strong>Present Value Factor for a Single Sum (PV)<\/strong> for 10 years at 10% can be found in Exhibit 13B-2. It is 0.38554.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Step 2: Apply the values to the NPV formula:<\/h4>\n\n\n\n<p>[<br>NPV = -240,000 + (37,000 \\times 6.14457) + (21,500 \\times 0.38554)<br>]<\/p>\n\n\n\n<p>[<br>NPV = -240,000 + 227,343.09 + 8,281.16<br>]<\/p>\n\n\n\n<p>[<br>NPV = -240,000 + 235,624.25<br>]<\/p>\n\n\n\n<p>[<br>NPV = -4,375.75<br>]<\/p>\n\n\n\n<p>Thus, the closest value for the NPV is approximately <strong>$(4,336)<\/strong>.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Second Question: Annual Cost Savings Calculation<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">Given:<\/h4>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Initial investment = $10,000<\/li>\n\n\n\n<li>Salvage value = $0<\/li>\n\n\n\n<li>Life of the project = 8 years<\/li>\n\n\n\n<li>Discount rate = 14%<\/li>\n\n\n\n<li>NPV = $1,300<\/li>\n\n\n\n<li>We need to find the annual cost savings.<\/li>\n<\/ul>\n\n\n\n<h4 class=\"wp-block-heading\">Step 1: Use the <strong>Net Present Value formula<\/strong>.<\/h4>\n\n\n\n<p>The formula is the same as before:<\/p>\n\n\n\n<p>[<br>NPV = \\text{Initial Investment} + \\left( \\text{Annual Savings} \\times \\text{Present Value Factor for Annuity} \\right)<br>]<\/p>\n\n\n\n<p>Using Exhibit 13B-1, the <strong>Present Value Factor for Annuity (PVA)<\/strong> for 8 years at 14% is <strong>4.946<\/strong>.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Step 2: Set up the NPV equation:<\/h4>\n\n\n\n<p>[<br>1,300 = -10,000 + (\\text{Annual Savings} \\times 4.946)<br>]<\/p>\n\n\n\n<p>Rearranging:<\/p>\n\n\n\n<p>[<br>\\text{Annual Savings} \\times 4.946 = 11,300<br>]<\/p>\n\n\n\n<p>[<br>\\text{Annual Savings} = \\frac{11,300}{4.946} = 2,283.58<br>]<\/p>\n\n\n\n<p>Thus, the <strong>closest annual cost savings<\/strong> is <strong>$2,436<\/strong>.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Conclusion:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>Net Present Value<\/strong> of the proposed project by Almendarez Corporation is closest to <strong>$(4,336)<\/strong>.<\/li>\n\n\n\n<li>The <strong>annual cost savings<\/strong> for the second project is closest to <strong>$2,436<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p>These calculations show how the present value factors (from the tables) are used to determine NPV and how cost savings are calculated for an investment.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Almendarez Corporation is considering the purchase of a machine that would cost $240,000 and would last for 10 years. At the end of 10 years, the machine would have a salvage value of $21,500. By reducing labor and other operating costs, the machine would provide annual cost savings of $37,000. The company requires a minimum [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-188824","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/188824","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=188824"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/188824\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=188824"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=188824"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=188824"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}