he 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 $61,500 per year. A self-serve checkout machine would reduce part-time student wages by $41,500 per year. The machine would cost $370,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,300 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $11,300. The salvage value of the checkout machine in 10 years would be $46,500. The CCA rate is 25%. Management requires a 9% 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? multiple choice Yes
he 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 $61,500 per year. A self-serve checkout machine would reduce part-time student wages by $41,500 per year. The machine would cost $370,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,300 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $11,300. The salvage value of the checkout machine in 10 years would be $46,500. The CCA rate is 25%. Management requires a 9% 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? multiple choice Yes
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
165.
Subject :- Accounting
Transcribed Image Text:he 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
$61,500 per year. A self-serve checkout machine would reduce part-time student wages by $41,500 per year. The machine
would cost $370,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,300 per
year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $11,300.
The salvage value of the checkout machine in 10 years would be $46,500.
The CCA rate is 25%. Management requires a 9% 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?
multiple choice
Yes
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education