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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

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter10: Cost Analysis For Management Decision Making
Section: Chapter Questions
Problem 11P: Emerald Island Company is considering building a manufacturing plant in County Kerry. Predicting...
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Subject :- Accounting 

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
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
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