Reference no: EM132927452

Problem - 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 $58,000 per year. A self-serve checkout machine would reduce part-time student wages by $38,000 per year. The machine would cost $300,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $5,600 per year, including maintenance. Major maintenance would be needed on the machine in ?ve years at a total cost of $10,600. The salvage value of the checkout machine in 10 years would be $43,000. The CCA rate is 25%. Management requires a 10% after-tax return on all equipment purchases. The company's tax rate is 30%.

Required -

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.

2-b. Would you recommend that the machine be purchased?