Question

Capital Decision Matrix

Net Present Value

Jack in the Box

You are the owner of a Jack in the Box and responsible for picking one capital project for a single restaurant in a new district. For this example, ignore all tax implications (so don’t worry about depreciation).   Determine cash flows from the incremental profits or cost savings as listed. Use 10 percent as the interest rate.

The projects are:

Purchase a dessert case

Will provide incremental profits of 10 cents per guest check. The store has 100,000 guests per month. Dessert case cost $42,000 and will last 4 years.

Purchase an automatic floor scrubber

Will save 10 labor hours per week. Average wage is $9 per hour. Will last 2 years and costs $12000.

Purchase floor mats

For safety purposes because slips are a problem. Have had one lawsuit in the last 10 years. Cost 100 dollars per mat. Will need 10 mats. (Hint: this will simply have a negative net present value as there is no stream of future profits or cash savings).

Purchase new fryer

Will allow for quicker service because don’t currently have enough fryers to keep up with increased service needs. Could increase sales by 1000 per month and decrease avg. wait time. Will cost $5000 and last 5 years.

Determine the NPV for each project. Then, prepare a capital prioritization matrix with NPV as one of 5 key criteria. You determine the other 4 criteria (ie: guest service, safety, etc.) Weight each criteria and then rank each project 1-5 with 1 being unfavorable and 5 favorable for each criteria. For example the project with the highest NVP would get a 5 in that column and the project with negative NPV would get a 1 in that column. The project with great guest service benefits would get a 4 or 5 and a project with no guest service benefit would score a 2 for that column.

Use the capital matrix to determine which of the 5 capital purchases you will make for your Jack in the Box.

Answer 1

YEARS floor new fryer Jdessert case automatic floor scrubber floor mats new fryer INFLOWS automatic floor dessert case mats scrubber 11 $1,20,000.00 $ 4,680.00 $ 2 $1,20,000.00 $ 4,680.00 $ 3 $1,20,000.00 $ - $ 4 $1,20,000.00 $ - $ 5 $ - $ - $ OUTFLOW $ 42,000.00 $ 12,000.00 $ 1,000.00 $ 5,000.00 - - - - - $ 12,000.00 $12,000.00 $12,000.00 $12,000.00 $ 12,000.00 PV OF INFL $3,80,383.85$ 8,122.31 $ - $ 45,489.44 NPV $3,38,383.85 $ -3,877.69 $-1,000.00 $ 40,489.44 RANKING PRESENT VALUE YEARS P. VALUE OF INFLOWS FACTOR @ 10% 1 0.909091/ $1,09,090.91 $ 4,254.55 $ - 2 0.826446 $ 99,173.55 $ 3,867.77 $ - 3 0.751315 $ 90,157.78 $ - $ - 4 0.683013 $ 81,961.61 $ - $ - 5 0.620921 $ - $ - $ - SUM OF P. VALUE $3,80,383.85 $ 8,122.31 $ . OF INFLOWS $ 10,909.09 $ 9,917.36 $ 9,015.78 $ 8,196.16 $ 7,451.06 $45,489.44