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Economics Two Problems - College Coffee and Pastry / Home Health Care Associates




Question;Question 1College Coffee and Pastry (CCP) has realized that its stores are filled with customers but revenues are not growing. Students are spending long periods of time at their tablesusing their computers while making minimal purchases. Other customers are complaining about the lack of available tables. Two proposals are being considered to remedy thesituation.Option 1 is to purchase and install new technology routers in each of their 400 stores at a cost of $25,000 per store. These routers will not only monitor customer usage but alsopush advertising to the user's computer screens. A proposal for development of the routers indicates that they can be quickly developed for a cost of $8,000,000. The investmentin development and router purchase can be depreciated straight line over 5 years. The expected life of the routers is five years and they will have no salvage value. Service andsupport for the routers will be centralized in the corporate offices and are budgeted at $1,000,000 in year 0 with a 15% annual increase over the life of the project. It is expectedthat the routers will increase revenues by 10% per year starting in year 1.Option 2 is to issue tokens with purchases. These tokens can be inserted in coin operated Ethernet LAN access points at tables. A suitable fully-supported Gigabit Ethernetrouter can be leased at a yearly cost of $20,000 per store. It is expected that this option will increase sales in each store by 5%. It will be marketed as a more secure approachto public networkingSales at present stores average $0.5 million per store with labor and materials averaging 40% of revenues. Overhead including rent, management and general maintenance is$250,000 per store and this is not expected to change with either option. The MARR used for investment proposals is 12% and the tax rate is 30%. Using a 5-year time span,which project should be selected based on present worth. State any needed assumptions.Data Block(Currency in $Million)(Currency in $Million)Per StorePer StoreNet SalesLabor & MaterialsOverhead$0.5040.00%$0.25No. of StoresMAARTax RateDevelopmentImplementationOperations & Maint.O&M Escalation40012.00%30.00%Option 1$8.00$0.025$1.00015.000%Depreciation PeriodDepreciation MethodExpected LifeSalvage ValueRevenue ImpactPer StoreLease Cost5S-L5010.00%0Net SalesLabor & MaterialsOverheadof SalesFixed - per storeCorporate$500,00040.00%$250,000of SalesFixed - per storeCorporateProposalsNo. of StoresMAARTax RateDevelopmentImplementationOperations & Maint.O&M EscalationDepreciation PeriodDepreciation MethodExpected LifeSalvage ValueRevenue ImpactPer StoreLease CostOption 240012.00%30.00%Option 1$8,000,000$25,000$1,000,00015.000%5S-L5010.00%0Proposals00 per store0 Corporate0 per yearyearsyears5.00%$0.02 annualSolutionNew Router cost eachPresent Router costStoresRouter purchase costDesign and testingProject Length$25,000400$10,000,000$8,000,0005DepreciationService expenseService expense growthPresent salesCOGSOverheadSales IncreaseTax rateMARR5$1,000,00015%$500,00040%$250,00010%30%12%per storeyearsyears straight linestarting in year 0annuallyannually per storerevenuesStoreProfit/LossSales revenueCost of goods soldRouter CostGross profitGeneral, sales andAdmin.OverheadDepreciationService ExpenseNet operating incomeIncome tax @ 30%Net incomeCurrent$500,000$200,000$300$299,700$250,000$49,700$14,910$34,790Future$805,255$322,102$25,000$458,153$250,000$4,000$5,028$199,125$59,737$139,387Option 200 per store0 Corporate0 per yearyearsyears5.00%$20,000annualQuestion 2Home Health Care Associates, a nonprofit agency that provides daily nursing visits for elderly clients, needs to make a decision concerning converting to digital record keeping. Thiswould not only affect office record storage but also nurses who would have the use of tablet computers when visiting patients. There are several benefits that could result from this.Nurses now spend an average of 15 minutes a after visiting each patient writing nursing notes. The software in the computer could substantially reduce this by elimination of muchduplication of names, addresses etc. using drop down lists and check boxes. The nursing notes are then reviewed, edited, typed, and filed at the home office where further efficiencieswould occur. An internet connected tablet computer could make all past notes and patient information immediately available and disease and prescription information could bereferenced from the internet. Overall, It should offer more accurate and current information with less effort. A cost-benefit analysis is needed.Present situation: Nurses are paid $1,200 per week and can make 40 visits per week. The agency receives an average revenue of $50 per visit. Administrative costs for the office are$800,000 annually and cover schedulers, paperwork, and supervision.Proposed situation: With the new system, nurses are expected to be able to make 12.5% more visits a week and administrative costs would be reduced 10%. Other costs are notexpected to change. The tablet computers and software would cost $100,000. Training and record conversion are estimated at $80,000.Prepare an evaluation that compares cost versus benefits for a one year time frame. Should the project be implemented?Data BlockcalculatedNurse SalariesVisits in homesCost per visitVisit Increase with proposalRevenue per visitNumber of NursesAdministrative Cost ReductionCosts reduction with proposalHardware and SoftwareTraining and conversion$1,20040$3012.5%$5020$800,00010%$100,000$80,000WeeklyWeeklyper visitannuallySolutionCostVisits in homesCost per visitRevenue per visitNumber of NursesAdministrative Cost/ReductionHardware and SoftwareTraining and conversion40$30$50.00$800,000$100,000$80,000Yearly2080$1,560$78,000.00$800,000Benetfits45yearly2340$5020$720,000$117,000.00


Paper#55627 | Written in 18-Jul-2015

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