# Restaurant Purchasing a POS System

Restaurant Purchasing a POS System

Question One:

Need essay sample on *"Restaurant Purchasing a POS System"* ?
We will write a custom essay sample specifically for you for
only **$12.90/page**

Determine the payback period, present value, and net present value of this project for the three-year period, utilizing an 8% discount rate.

i) Payback period

a. Undiscounted payback period

Nance’s Restaurant

Year 0

Year 1

Year 2

Year 3

Hardware and software cost

$20,000.00

Incremental increases in profit

$8,000

$9,000

$10,000

Cumulative increases in profit

$8,000

$17,000

$27,000

Payback period (undiscounted) = 2 years + ($20,000 – 17,000)/10,000 = 2.3 years (2 years, 3 ½ months).

b. Discounted payback period

Nance’s Restaurant

Year 0

Year 1

Year 2

Year 3

Hardware and software cost

$20,000.00

incremental increases in profit

$8,000

$9,000

$10,000

Present value interest factors at 18 %

0.9259

0.8573

0.7938

Present values

$7,407.41

$7,716.05

$7,938.32

Cumulative increases in profit (present values)

$7,407

$15,123

$23,062

Payback period (discounted) = 2 years + ($20,000 – 15,123)/7,938.32 = 2.61 years (2 years, 7.37 months).

ii) Present value

Present value = Sum of all present values of the cash flows.

Nance’s Restaurant

Year 0

Year 1

Year 2

Year 3

Hardware and software cost

$20,000.00

incremental increases in profit

$8,000

$9,000

$10,000

Present value interest factors at 18 %

0.9259

0.8573

0.7938

Present values

$7,407.41

$7,716.05

$7,938.32

Total present value

$23,061.78

iii) Net present value

Nance’s Restaurant

Year 0

Year 1

Year 2

Year 3

Hardware and software cost

$20,000.00

incremental increases in profit

$8,000

$9,000

$10,000

Present value interest factors at 18 %

0.9259

0.8573

0.7938

Present values

$7,407.41

$7,716.05

$7,938.32

Total present value

$23,061.78

Net Present value = Present value – initial cost $(23,061.78 – 20,000)

$3,061.78

Since the net present value is positive (i.e., NPV>0), Nance restaurant should consider installing the new POS system.

References

Pandey, I. M. (1998). Financial Management (9th edition), Vikas Publishing, India.

Weston, J.F. & Copeland, T.E. (1991). Managerial Finance (9th edition). Dryden Press.

Van Horne, J. (2008). Fundamentals of Financial Management. Prentice-Hall International Edition.