Costs

$$ There will be a one$-$time cost of $$45,000,000$ in $2018$ to develop and implement the system

software.

$$ Starting in $2019$ there will be an annual software maintenance fee of $$16,000$ per store in which

kiosks are installed to cover bug fixes and upgrades.

$$ Target has a total of $3,000$ stores with kiosk installation occurring on the following schedule: $500$

stores in $2018,700$ stores in $2019,800$ stores in $2020,$ and the remaining $1,000$ stores in $2021$

$$ Each store will have $8$ customer kiosks installed. Two kiosks will be located at each entrance

with the other kiosks located at select spots within the store.

$$ There is a one$-$time cost per kiosk of $$32,000$ which represents the kiosk$$s purchase and

installation.

$$ There is an annual hardware maintenance fee of $$4,500$ to maintain each installed kiosk starting

in the year the kiosk is installed.

Benefits

The tangible benefits come from reduced labor costs and increased sales revenue.

$$ The kiosks are expected to reduce the need for employees to spend time directing customers to

products. This time savings will result in reduced labor costs equivalent to employing one

employee during regular store hours from $8$am$-8$pm per store where kiosks are installed.

$$ Target stores are open $365$ days per year.

BIS $300$ Break Even Case Study $$ Instructions

$2$

$$ The sales associate labor rate is $$10\mathrm{.}50$ per hour.

$$ The kiosks are also expected to increase the likelihood that customers will find all of the items

they are looking to purchase. It is estimated that each store with kiosks will sell $130$ additional

items per day, averaging $$1\mathrm{.}85$ per item.

Calculations

The break$-$even analysis will cover a $6-$year period from $2018-2023.$

For each year:

$$ Calculate the system costs and benefits.

$$ Calculate the net benefits of the system and the break$-$even totals for the system. Break even

totals are simply the accumulated net benefits. The project breaks even when the accumulated

net benefits value is positive.

For the total time period:

$$ Calculate the net present value $($NPV$)$ of the investment using a rate of $15\%.$

$$ Calculate the internal rate of return $($IRR$).$

Answer the four questions at the bottom of the spreadsheet.

$$ In what year will Target break even on this project?

$$ Based on their target rate of return of $15\%,$ should Target go forward with this project?

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

$$ What is the NPV if the annual hardware maintenance fee is increased by $$500?$