ROI & NPV: wireless order-tracking system
I need to identify the ROI and NPV of the wireless order-tracking system.
Here is the information I have been given:
- The acquisition cost is $35,000 paid at the time of installation.
- It reduces the wait staff by one person: Figure $10 per hour, or 2020 hours per year + 18%
Benefits:
- Money costs are 7%
- The system may become obsolete in three years
To calculate the ROI (Return on Investment) and NPV (Net Present Value) of the wireless order-tracking system, you will need to consider the financial costs and benefits associated with the system.
1. Calculate the annual savings from reduced wait staff:
- Determine the hourly wage saved by reducing one person from the wait staff. In this case, it is $10 per hour.
- Calculate the annual savings by multiplying the hourly wage by the number of hours worked per year (2020 hours) and adjusting for an 18% increase due to payroll taxes and benefits.
Annual savings from reduced wait staff = ($10 per hour * 2020 hours per year) + ($10 per hour * 2020 hours per year * 18%)
2. Calculate the present value of the annual savings:
- Adjust the annual savings for the money costs, which are given as 7%.
Present value of annual savings = Annual savings from reduced wait staff / (1 + 7%)^n
Here, 'n' represents the number of years over which the system is expected to generate savings. In this case, we assume three years as the system may become obsolete after that time.
3. Calculate the net cash inflow:
- Calculate the net cash inflow by subtracting the acquisition cost from the present value of the annual savings.
Net cash inflow = Present value of annual savings - Acquisition cost
4. Calculate the NPV:
- The NPV is the sum of the net cash inflow for each year adjusted to its present value.
NPV = Net cash inflow for year 1 / (1 + 7%)^1 + Net cash inflow for year 2 / (1 + 7%)^2 + Net cash inflow for year 3 / (1 + 7%)^3
5. Calculate the ROI:
- The ROI represents the return on investment as a percentage.
ROI = (Net cash inflow / Cost of investment) * 100
By following these steps, you should be able to calculate the ROI and NPV of the wireless order-tracking system based on the given information.