Target Customer Kiosks

Target is considering the installation of customer kiosks intheir stores. The kiosks will allow customers to search forproducts, tell them if the products are in stock, and show them ona map where in the store the products are located. Use thefollowing facts to conduct a break-even analysis of the customerkiosk technology.

Costs

·         There will be aone-time cost of $45,000,000 in 2018 to develop and implement thesystem software.

·         Starting in 2019there will be an annual software maintenance fee of $16,000 perstore in which kiosks are installed to cover bug fixes andupgrades.

·         Target has atotal of 3,000 stores with kiosk installation occurring on thefollowing schedule: 500 stores in 2018, 700 stores in 2019, 800stores in 2020, and the remaining 1,000 stores in 2021

·         Each store willhave 8 customer kiosks installed. Two kiosks will be located ateach entrance with the other kiosks located at select spots withinthe store.

·         There is aone-time cost per kiosk of $32,000 which represents the kiosk’spurchase and installation.

·         There is anannual hardware maintenance fee of $4,500 to maintain eachinstalled kiosk starting in the year the kiosk is installed.

Benefits

The tangible benefits come from reduced labor costs andincreased sales revenue.

·         The kiosks areexpected to reduce the need for employees to spend time directingcustomers to products. This time savings will result in reducedlabor costs equivalent to employing one employee during regularstore hours from 8am-8pm per store where kiosks are installed.

·         Target stores areopen 365 days per year.

·         The salesassociate labor rate is $10.50 per hour.

·         The kiosks arealso expected to increase the likelihood that customers will findall of the items they are looking to purchase. It is estimated thateach store with kiosks will sell 130 additional items per day,averaging $1.85 per item.

Calculations

The break-even analysis will cover a 6-year period from2018-2023.

For each year:

·         Calculate thesystem costs and benefits.

·         Calculate the netbenefits of the system and the break-even totals for the system.Break even totals are simply the accumulated net benefits. Theproject breaks even when the accumulated net benefits value ispositive.

For the total time period:

·         Calculate the netpresent value (NPV) of the investment using a rate of 15%.

·         Calculate theinternal rate of return (IRR).

Answer the four questions at the bottom of the spreadsheet.

·         In what year willTarget break even on this project?

·         Based on theirtarget rate of return of 15%, should Target go forward with thisproject?

·         In what year willTarget break even if the employee labor rate per hour is $11?

·         What is the NPVif the annual hardware maintenance fee is increased by $500?

Please fill in the following TEMPLATE only forUPVOTE

Break EvenAnalysis for Target Customer Kiosks
Variables		2018	2019	2020	2021	2022	2023
Count of new stores installing kiosks
Running total of stores with kiosksinstalled
Number of kiosks per store
One-time software development andimplementation
Purchase and installation per kiosk
Annual software maintenance per store
Annual hardware maintenance per kiosk
Employee labor rate per hour
Business days per year
Regular store hours per day
Additional items sold per store withkiosks
Average revenue per additional itemsold
NPV Rate
Costs		2018	2019	2020	2021	2022	2023
One-Time software development andimplementation
Purchase and installation of kiosks
Annual software maintenance
Annual hardware maintenance
Total Annual Costs
Benefits		2018	2019	2020	2021	2022	2023
Reduced labor
Increased sales
Total Annual Benefits
Break-Even, NPV, and IRRCalculations		2018	2019	2020	2021	2022	2023
Net Annual Benefits
Break-Even Totals (Accumulated NetBenefits)
Net Present Value (NPV)
Internal Rate of Return (IRR)
Questions
In what year will Target breakeven on this project?
Based on their target rate ofreturn of 15%, should Target go forward with this project?
In what year will Target breakeven if the employee labor rate per hour is $11.
What is the NPV if the annualhardware maintenance fee is increased by $500?