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 $55,500 per year. A self-serve checkout machine would reduce part-time student wages by $35,500 per year. The machine would cost $250,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $5,100 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $10,100. The salvage value of the checkout machine in 10 years would be $40,500. 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. Answer is complete and correct. Net annual cost savings $ 30,400 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.) Answer is complete but not entirely correct.
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 $55,500 per year. A self-serve checkout machine would reduce part-time student wages by $35,500 per year. The machine would cost $250,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $5,100 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $10,100. The salvage value of the checkout machine in 10 years would be $40,500. 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. Answer is complete and correct. Net annual cost savings $ 30,400 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.) Answer is complete but not entirely correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $55,500 per year. A
self-serve checkout machine would reduce part-time student wages by $35,500 per year. The machine would cost $250,000 and has
a 10-year useful life. Total costs of operating the checkout machine would be $5,100 per year, including maintenance. Major
maintenance would be needed on the machine in five years at a total cost of $10,100. The salvage value of the checkout machine in 10
years would be $40,500.
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.
Answer is complete and correct.
Net annual cost savings
$ 30,400
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.)
Answer is complete but not entirely correct.
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