Question
What would the payback period be for a robotic arm used by McDonald's for food preparation? A variety of robots were featured at the 2016
What would the payback period be for a robotic arm used by McDonald's for food preparation?
A variety of robots were featured at the 2016 National Restaurant Show that could be used for a variety of tasks in restaurants. These robots are being introduced at the same time that we are experiencing an ongoing debate in the U.S. about the merits of a national minimum wage of $15 per hour for every worker. A former McDonalds USA CEO, Ed Rensi, recently said that purchasing a $35,000 robotic arm would be cheaper than paying fast-food workers $15 per hour for food preparation tasks like bagging French fries.
For this hypothetical example, lets make the following assumptions:
| For the cost of the hourly workers, use a total wage rate of $18 per hour to reflect payroll taxes (payroll taxes can add 15% or more to the hourly wage rate.) |
| Assume that freight and installation for the robots initial placement in a McDonalds restaurant will be a one-time cost of $5,000. |
| The robot will require periodic service. Assume an annual service contract is required that costs 10% of the original cost plus installation of the robot per year. |
| Assume that the robot will replace 10 employee hours per day, 360 days per year (the robot will not, at least initially, be as versatile as a person and cannot fully eliminate all food prep workers at this point.) |
| Electricity and supplies consumed by the robot will be assumed to be $1,500 per year. |
Questions
- What would the payback period be on a McDonalds robot used for food preparation?
- What qualitative factors would McDonalds need to consider when deciding whether to purchase robots to replace some of its food preparation workers?
- Given the payback period, would net present value (NPV) or internal rate of return (IRR) be likely to be useful tools for analyzing this decision? Support your response.
Note: I don't want the answer to be handwriting and please answer all the parts, this is my third time posting this question. Thank you!
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