Question
The Hub Store at a university in eastern Canada is considering purchasing a self-serve checkout machine similar to those used in many grocery stores and
The Hub Store at a university in eastern Canada is considering purchasing a self-serve checkout machine similar to those used in many grocery stores and other retail outlets. Currently the university pays part-time wages to students totalling $64,000 per year. A self-serve checkout machine would reduce part-time student wages by $44,000 per year. The machine would cost $420,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,800 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $11,800. The salvage value of the checkout machine in 10 years would be $49,000. |
The CCA rate is 25%. Management requires a 10% after-tax return on all equipment purchases. The companys tax rate is 30%. |
Required: |
1. | Determine the before-tax net annual cost savings that the new checkout machine will provide. |
2-a. | Using the data from (1) above and other data from the exercise, compute the checkout machines net present value. (Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and round your final answer to the nearest dollar amount. Negative value should be indicated with minus sign.) |
2-b. | Would you recommend that the machine be purchased? | ||||
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started