Johnson's Mini Mart Is Considering the Purchase of a New

question 29

Essay

Johnson's Mini Mart is considering the purchase of a new electronic bar code scanner that will keep detailed records of every sale transaction.The scanner is likely to have little effect on operating revenues and expenses.Its acquisition is primarily for increasing management information about sales.The scanner costs $4,600 and would be included in Class 8 for tax purposes.Johnson's accountant has stated that due to the fast write-off of Class 8 assets (20% CCA rate), its real cost is less than $4,600.Due to technological obsolescence, it would have zero salvage value.Required:
a.Since the bar code scanner cannot produce a profit or even show short run savings, should it even be evaluated as a capital budgeting expenditure? Explain.
b.Explain whether or not the real cost is less than $4,600.
c.If the company has a 40 percent tax rate and a 10% discount rate, compute the real cost of the bar code scanner.Assume there would be other assets in the class.

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Definitions:

Business Interruption Insurance

A form of insurance that compensates the insured for continuing expenses incurred while the business is not earning income.

Revenue Losses

These are decreases in income, typically experienced by businesses or governments, resulting from factors like reduced sales, changes in market conditions, or operational challenges.

Fire

A rapid oxidation process, which is a chemical reaction resulting in the emission of heat and light.

Food Poisoning

Food poisoning is an illness caused by consuming contaminated or toxic food, characterized by symptoms such as vomiting, diarrhea, and nausea.