Determine the before-tax net annual cost savings

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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 $62,000 per year. A self-serve checkout machine would reduce part-time student wages by $42,000 per year. The machine would cost $380,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $6,400 per year, including maintenance. Major maintenance would be needed on the machine in ?ve years at a total cost of $11,400. The salvage value of the checkout machine in 10 years would be $47,000. The CCA rate is 25%. Management requires a 10% after-tax return on all equipment purchases. The company's tax rate is 30%.

Required:

Problem 1. Determine the before-tax net annual cost savings that the new checkout machine will provide.

Reference no: EM132793924

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