The Purple 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 $65,000 per year. A self-serve checkout machine would reduce part-time student wages by $45,000 per year. The machine would cost $440,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $7,000 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $12,000. The salvage value of the checkout machine in 10 years would be $50,000.

The CCA rate is 25%. Management requires a 10% after-tax return on all equipment purchases. The company's 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 machine's 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?

• Yes
• No