What is the NPV of Applebee’s investment in tableside tablets for its restaurants?

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# What is the NPV of Applebee’s investment in tableside tablets for its restaurants? - PowerPoint PPT Presentation

What is the NPV of Applebee’s investment in tableside tablets for its restaurants?. Original blog posting (February 14 , 2014 ). Applebee’s is installing Presto tablets by E La Carte at every table.

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Presentation Transcript
What is the NPV of Applebee’s investment in tableside tablets for its restaurants?

Original blog posting (February14, 2014)

• Customers will be able to pay their food bill and order appetizers and desserts using the tablets
• Also function as jukeboxes and can be used to play games
Data and Assumptions
• Each tablet has an initial purchase price of \$250
• The annual subscription fee per tablet is \$50
• Average revenue generated per day by each tablet is \$1
• Average number of days each tablet is in use each year is 360 days
• Additional annual IT costs incurred for tablet integration into Applebee’s system is \$225,000
• The useful life of the tablets is four years.  Ignore depreciation and taxes.
Question 1

Calculate the NPV of the investment in the tablets using a discount rate of 6%.

Question 2

Now calculate the NPV of the investment in the tablets using a discount rate of 12%.

Question 3

Does this investment in the tablets appear to be a financially sound investment for Applebee’s?  Why or why not?

Question 4

Recalculate the NPV of the investment now using an estimated useful life for the tablets of three years instead of four years.  Assume a discount rate of 6%. What happens to the NPV compared to when the useful life was assumed to be four years?  Does this investment still appear to be financially sound?

Question Recap
• Calculate the NPV of the investment in the tablets using a discount rate of 6%.
• Now calculate the NPV of the investment in the tablets using a discount rate of 12%.
• Does this investment in the tablets appear to be a financially sound investment for Applebee’s?  Why or why not?
• Recalculate the NPV of the investment now using an estimated useful life for the tablets of three years instead of four years.  Assume a discount rate of 6%. What happens to the NPV compared to when the useful life was assumed to be four years?  Does this investment still appear to be financially sound?

For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/Related video resources can be found at http://www.youtube.com/user/accountingheadlinesQuestions or comments? Contact Dr. Wendy Tietz at wtietz@kent.edu