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?. Original blog posting (February 14 , 2014 ). Applebee’s is installing Presto tablets by E La Carte at every table. - PowerPoint PPT PresentationTRANSCRIPT
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
What is the NPV of Applebee’s investment in tableside tablets for its restaurants?
Original blog posting (February 14, 2014)
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
Applebee’s is installing Presto tablets by E La Carte at every table
• 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
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
Data and Assumptions1. Each tablet has an initial purchase price of $2502. The annual subscription fee per tablet is $503. Average revenue generated per day by each
tablet is $14. Average number of days each tablet is in use
each year is 360 days5. Additional annual IT costs incurred for tablet
integration into Applebee’s system is $225,0006. The useful life of the tablets is four years. Ignore
depreciation and taxes.
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
Question 1
Calculate the NPV of the investment in the tablets using a discount rate of 6%.
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
Question 2
Now calculate the NPV of the investment in the tablets using a discount rate of 12%.
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
Question 3
Does this investment in the tablets appear to be a financially sound investment for Applebee’s? Why or why not?
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
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?
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
Question Recap 1. Calculate the NPV of the investment in the
tablets using a discount rate of 6%.2. Now calculate the NPV of the investment in the
tablets using a discount rate of 12%.3. Does this investment in the tablets appear to be
a financially sound investment for Applebee’s? Why or why not?
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?
Copyright © 2014 by Dr. Wendy Tietz. This work is licensed under a Creative Commons Attribution-
NonCommercial 3.0 Unported License.
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/accountingheadlines
Questions or comments? Contact Dr. Wendy Tietz at [email protected]