wages to students totalling $58,500 per year A self-serve checkout machine woul

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wages to students totalling $58,500 per year A self-serve checkout machine woul student wages by $38,500 per year. The machine would cost $310,000 and has a 10-year useful life. Total Hut thosis tota 0 per machi500ater-ta The Hub Store at a university in eastern Canada is considering purchasing a self-serve checkout machine e used in many grocery stores and other retail outlets. Currently the university pays part-time costs of operating the checkout machine would be $5,700 per year, including maintenance. Major intenance would be needed on the machine in five years at a total cost of $10,700. The salvage value of the checkout machine in 10 years would be S43,500 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. Net annual cost savings 2-a. Us ing 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 Net present value 2-b. Would you recommend that the machine be purchased? 2 O Yes No

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PVIFA(9%,10) PV Ans 1 Net annual cost savings $        32,800 x               6.4177     210,499.17 A (38500-5700) Initial cost $310,000 x 1 (310,000.00) B CCA x 25% Tax rate x 30% PVIFA(9%,4) depreciation tax savings $ 23,250.00 x               3.2397 $   75,323.49 C PVF(9%,10) Salvage value(net of tax) $ 30,450.00 x               0.4224        12,862.41 D (43500 x (1-30%)) PVF(9%,5) maintenance cost net of tax Year 5 $    7,490.00 x               0.6499        (4,867.99) E (10700 X (1-30%)) Ans 2 Net Present Value     (16,182.92) A+B+C+D+E No, machine should not be purchased since it has negative NPV. Note: cost is shown as negative. life 10 Years

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