At Applebeeâs, Presto tablets by E la Carte are being installedat every table. In total, Applebeeâs will be purchasing 100,000tablets. Customers will be able to pay their food bill and orderappetizers and desserts using the tablets. The tablets are notreplacing wait staff; wait staff will still take the orders forentrees. Applebeeâs does not expect to reduce the work hours of itswait staff due to the tablet installation. By allowing customers topay whenever they want using the tablets, it is expected thatcustomers will be more satisfied, both with the ease and speed ofpayment. Diners are expected to get out the door faster with thenew tablet payment method.
The tablets will also function as jukeboxes at individual tablessince customers can select and pay for music tableside. Inaddition, customers will be able to play games on the tablets for asmall fee. The music and game sales revenue will be split betweenApplebeeâs and E la Carte.
In addition to the initial purchase price of the tablethardware, Applebeeâs will be paying E la Carte a subscription feefor the use and upkeep of the tablets.
Data and assumptionsUsethe following assumptions for data for this exercise (all figuresare assumptions only):
1. Each tablet has an initialpurchase price of $250
2. The annual subscription feeper tablet is $50
3. Average revenue generated perday by each tablet is $1
4. Average number of days eachtablet is in use each year is 360 days
5. Additional annual IT costsincurred for tablet integration into Applebeeâs system is$225,000
6. The useful life of the tabletsis four years. Ignore depreciation and taxes.
Questions:
1. Calculate the NPV of theinvestment in the tablets using a discount rate of 6%.
2. Now calculate the NPV of theinvestment in the tablets using a discount rate of 12%.
3. Does this investment in thetablets appear to be a financially sound investment for Applebeeâs?Why or why not?
4. Recalculate the NPV of theinvestment now using an estimated useful life for the tablets ofthree years instead of four years. Assume a discount rate of 6%.What happens to the NPV compared to when the useful life wasassumed to be four years? Does this investment still appear to befinancially sound?
At Applebeeâs, Presto tablets by E la Carte are being installedat every table. In total, Applebeeâs will be purchasing 100,000tablets. Customers will be able to pay their food bill and orderappetizers and desserts using the tablets. The tablets are notreplacing wait staff; wait staff will still take the orders forentrees. Applebeeâs does not expect to reduce the work hours of itswait staff due to the tablet installation. By allowing customers topay whenever they want using the tablets, it is expected thatcustomers will be more satisfied, both with the ease and speed ofpayment. Diners are expected to get out the door faster with thenew tablet payment method.
The tablets will also function as jukeboxes at individual tablessince customers can select and pay for music tableside. Inaddition, customers will be able to play games on the tablets for asmall fee. The music and game sales revenue will be split betweenApplebeeâs and E la Carte.
In addition to the initial purchase price of the tablethardware, Applebeeâs will be paying E la Carte a subscription feefor the use and upkeep of the tablets.
Data and assumptionsUsethe following assumptions for data for this exercise (all figuresare assumptions only):
1. Each tablet has an initialpurchase price of $250
2. The annual subscription feeper tablet is $50
3. Average revenue generated perday by each tablet is $1
4. Average number of days eachtablet is in use each year is 360 days
5. Additional annual IT costsincurred for tablet integration into Applebeeâs system is$225,000
6. The useful life of the tabletsis four years. Ignore depreciation and taxes.
Questions:
1. Calculate the NPV of theinvestment in the tablets using a discount rate of 6%.
2. Now calculate the NPV of theinvestment in the tablets using a discount rate of 12%.
3. Does this investment in thetablets appear to be a financially sound investment for Applebeeâs?Why or why not?
4. Recalculate the NPV of theinvestment now using an estimated useful life for the tablets ofthree years instead of four years. Assume a discount rate of 6%.What happens to the NPV compared to when the useful life wasassumed to be four years? Does this investment still appear to befinancially sound?
