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 $62,500 per year. A self-serve checkout machine would reduce part-time student wages by $42,500 per year. The machine would cost $390,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,500 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $11,500. The salvage value of the checkout machine in 10 years would be $47,500. 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. $36,000 Net annual cost savings 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. $ (262,200) ► Net present value 2-b. Would you recommend that the machine be purchased? Yes No
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 $62,500 per year. A self-serve checkout machine would reduce part-time student wages by $42,500 per year. The machine would cost $390,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,500 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $11,500. The salvage value of the checkout machine in 10 years would be $47,500. 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. $36,000 Net annual cost savings 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. $ (262,200) ► Net present value 2-b. Would you recommend that the machine be purchased? Yes No
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 6PB: Karens Quilts is considering the purchase of a new Long-arm Quilt Machine that will cost $17,500 and...
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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 $62,500 per year. A self-serve checkout machine would reduce part-time student
wages by $42,500 per year. The machine would cost $390,000 and has a 10-year useful life. Total costs of
operating the checkout machine would be $6,500 per year, including maintenance. Major maintenance would
be needed on the machine in five years at a total cost of $11,500. The salvage value of the checkout machine in
10 years would be $47,500.
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.
$ 36,000
Net annual cost savings
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.
$ (262,200) X
Net present value
2-b. Would you recommend that the machine be purchased?
Yes
No
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