Engineering economy groupassignment fast food restaurant

Annual worth of rental alternatives Trade-off analysis for rental alternatives Menu Menu alternative | Menu alternative 2 WACC for equipment installation alternatives Maintenance Cost of

HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY OFFICE FOR INTERNATIONAL STUDY PROGRAMS

BK TP.HCM

BK-OISP

ENGINEERING ECONOMY

GROUPASSIGNMENT

Fast Food Restaurant

Lecturer: Assoc Prof Dr Le Ngoc Quynh Lam

Academic Year: 2022-2023

Student Student ID number Nguyen Vu Bich Ngoc 2052344

Hoang Tuan Anh 2052024

Thai Thi Minh Tram 2014816

Tran Hoai Phục 2053347

Vụ Minh Phuong 2052661

Ho Chi Minh City, December - 2022

Annual worth of rental alternatives

Trade-off analysis for rental alternatives

Menu

Menu alternative |

Menu alternative 2

WACC for equipment installation alternatives

Maintenance Cost of facilities with depreciation under 2%

Cost of facilities within maintenance duration

General operation information

Hourly payroll

Future Worth Calculations Adjusted for Inflation of Hourly salary

Future Worth Adjusted for Inflation of Hourly salary within a year

Monthly Revenue for each menu alternative

Annual Revenue for each menu alternative

Monthly expenses

Expenses cash flow

Profits from menu alternatives

ROR from menu alternatives

Table 27 Sensitivity analysis for percentage of COGS in menu price

Table 28 3 Rau analysis

Table 29 Fivestar analysis

Table 30 Trade-off analysis for business alternatives

List of figures Figure 1 Screenshot of the people estimator tools

Figure 2 3 Rau franchise options 21

Before implementing a product or project, in the technological area generally, they must take into account both the technical and the economic factors Engineering Economy play a crucial and determining role in every project or product when the prerequisite conditions have been met, not just in the conventional disciplines but also in technological technologies Through that, we may take into account the practical levels while balancing them with the market's actual customer considerations, allowing us to change and create a strategy to produce goods and projects on schedule as exhaustive as possible

The team has gradually come to understand the procedures to follow in order to examine economic variables for every project or product through Engineering Economy There are seven phases in the economic analysis process, including:

Identify and understand the problem; identify the objective of the project Collect relevant, available data and define viable solution alternatives

Make realistic cash flow estimates

Identify an economic measure of worth criterion for decision making

Evaluate each alternative; consider noneconomic factors; use sensitivity analysis as needed

^ Select the best alternative

7 Implement the solution and monitor the results

Following, we took the processes and put them into practice to assist the group better comprehend the subject and have practical experiences through this project They then monitored the outcomes and implemented the solution

After observing the surrounding factors, the group found that Ho Chi Minh University of Technology students tend to like fast food but are afraid to spend money because of issues related to price, distance, etc, The fast food dishes commonly found in Vietnam such as McDonald's, Lotteria, KFC, Jollibee, often have very high prices, and are not really suitable and close to the students in the school Furthermore, with the current fast food market experiencing rapid growth, it has demonstrated that customer demand for this item is increasing, with more than 1,400 food stores opening in 2020 Therefore, we decided

to learn and apply the knowledge of Engineering Economy in opening a fast food restaurant with the desire to optimize the prices of the dishes while ensuring the investment and profit

in the implementation process

2 Investment Requirements and Plan

2.1, Requirements

Fried chicken, which was introduced a decade ago, continues to be popular with

clients, has a pricing for people with a high average income As a result, our group's purpose

is to evaluate the choices of running a high-quality and affordable fried chicken restaurant with a respectable ROR of 9 to 11% For a three-year life cycle, the planned capital is 500 million VND

2.2 Investment plan

With the assumption that 500,000,000 VND is needed to run a fast food restaurant, the team plans to divide the above money into investing in the elements for the restaurant, specifically as follows: Premises - 50 millions; Equipment - 200 millions; Ingredients - 100 millions; Maintenace Repair Operation (MRO) - 100 millions; Borrow - 100 millions; Saving account - 200 millions

3 Business Cost Analysis

3.1, Rental Premises

Fried chicken is known as one of the most favorite dishes of the young generation including children and teenagers Hence, it’s best to locate near schools where a lot of students pass by The locations are closely studied in the table in appendix 1

For the site to be rented, they all required MRO cost for painting and refurbishing before the equipment was installed Also, the place also needs to be refurbished after 3 years Hence, the cashflow went up in year 0 and year 2 for each of the cash flows illustrated in the following figures

Taking into consideration the funds of the investments from the perspective of the owner, the funds that will be spent on the premises rental is VND 50,000,000 a month without the deposit So to have enough funds for deposit, it would be necessary to borrow money from the bank Hence, each case would have a different Weighted Average Cost of Capital (WACC) [1]

According to the textbook [2], WACC can be defined as the combination of debt-equity financing For a corporation, the established MARR used as a criterion to accept

an alternative will usually be equal to or higher than the WACC that the company has calculated Hence, based on the current fund of the owner, WACC can be calculated to identify the best alternative to choose as the preferred rental premises

Table 1 WACC of rental alternatives

Alternative 1: Tran Thien Chanh

Fund 68.5% 74% VND 100,000,000

Borrow 31.5% 75% VND 46,000,000

Fund 100% 7.4% VND 50,000,000 Borrow 0 7.5% VND 0

WACC 74%

Alternative 3; To Hien Thanh

Fund 100% 7.4% VND 27,000,000 Borrow 0% 7.5% VND 0

The table above can be summarized in the three following cash flow diagrams: For this Cash Flow, the annual worth can be calculated using the function ‘PMT(i%,

n, P, F)’ The annual value over the three years life cycle are summarized in the following table

lable 2 Annual worth of rental alternatives

Alternative Annual Worth (VND)

1 640,703,359

2 572,300,296

From the annual worth analysis, the alternative 3 is the best option also

To reassure the result, the varieties of variables should be considered simultaneously Hence, this is further analyzed by the trade-off analysis in the following table

Price Conditions | Location Size Total Score Weight 0.5 0.2 0.2 0.1 1.0

Alternative 1 Score 2 4 2 3 2.5 Total 1 0.8 0.4 0.3

Alternative 2 Score 3 3 4 2 3.1 Total 1.5 0.6 0.8 0.2

Alternative 3 Score 4 2 3 4 3.4 Total 2 0.4 0.6 0.4

Taking the Price, Conditions, Location and Size into consideration, the third alternative is still the best option for the premises rental The alternative has the most affordable price with the most suitable size of the space, good location, which is more approachable for the potential customers and in good condition without having to spend a lot of money on maintenance

3.2 Ingredients and Materials Supplier

is then estimated using the following menu price formula with the ideal food cost percentage

of 50%:

M ¬ COGS

enu price = Ideal food cost %

Table 5 Menu alternative 1

Menu price Dishes Quantity made COGS (estimated by the

(servings) food cost % of

50%) Original fried 50 VND 18,200 VND 37,000 chicken

Fish sauce chicken 50 VND 18,460 VND 37,000 Fries 60 VND 5,850 VND 12,000 Chicken Hamburger 35 VND 19,571 VND 40,000 Drinks 48 VND 8,167 VND 20,000 Total VND 3,261,000 VND 6,780,000 Net profit VND 3,519,000

lable 6 Menu alternative 2

Dishes Quantity made COGS Menu price

Fish sauce chicken 40 VND 20,325 VND 40,000 Fries 60 VND 5,850 VND 12,000 Chicken Hamburger 35 VND 22,679 VND 45,000 Drinks 48 VND 8,167 VND 20,000 Total VND 3,059,780 VND 6,235,000 Net profit VND 3,195,220

As seen in the tables above, it can be seen that it’s more profitable to purchase separate ingredients from the local market rather than buying frozen ingredients This will also help improve the quality of the dish served as the ingredients purchased from the market are fresh Since the quantity and the COGS of each menu varies, the menu prices are different The evaluation for which menu is the best alternative for the shop will be considered in the upcoming sections

3.3 Equipment installation

With the selected premise rental, by using the event venue people calculator, with 80 meter squares, a maximum of 71 people can fit in the room in round tables (figure 3.3.1) However, we also have to consider the space for cooking, hence, the capacity is around 50 at

a time Each table will be able to serve around 4 people Hence, the plan for the equipment can be shown in the following tables

60" wide round tables: o = &

(Original Cost—Salvage Value) Useful Life of the asset

Depreciation Value =

The depreciation value is calculated by the difference between salvage value and the original value of each of the items According to the government circulars [3], we used the 20% to estimate the salvage value of each item we purchased in the future, which means that 80% of the value is worn off over the life cycle of the business The depreciation rate is then calculated However, this is just estimated as we expect that the store has to run every day in three years which makes the assets worn off very quickly

In the next step of MRO analysis, the plan for replacement is considered for the item with depreciation rate less than 1%, and for item that has depreciation rate greater than 1% will be considered for maintenance plan In addition, the depreciation value is calculated to obtain the total depreciation value, however, it will not be included in the MRO plan in the next section Also, the assets that have such small value like spoon, plate, etc, will not be considered for salvage value which means that the assets need to be replaced surely The total cost for purchasing each item separately is around VND 55,000,000, therefore, we will have around VND 45,000,000, which can be used for maintenance or any other extra pay [4]

number we estimated would not be as accurate as the alternative 1 However, once we sign the contract with one of the vendors, it already includes the maintenance for the installation package Compared to the first options to the previous alternative, we would have less spare funds for other extra fees For the second option of this alternative, we would not have enough funds to purchase, and will have to borrow more funds from the bank This can be further considered using the WACC in the following table to choose the best option for the installation options.

Borrow Total Cost B Fund A t Fund

Alternative or 88 Amount Borrow Orrew une Amount Fund uu WACC

11

3.4.1 Maintenance & Repair

The MRO participant is also thinking about spending money on machinery and procedures that would facilitate better material flow within and around its primary facility Based on the monthly depreciation table calculated in the Equipment installation section, equipment with a depreciation rate below 2 would be considered as negligible depreciation which will be repaired and maintained In addition, if the equipment has a depreciation rate

of more than 2% (except for chopsticks, spoons, plate, gas, inox sink and installation fee), the equipment needs to be replaced with the new ones because the maintenance cost will be more expensive than buying new one and the quality cannot be guaranteed as well Table 8 Maintenance Cost of facilities with depreciation under 2%

Light 1fix 1 year 150,000 Receipt Printer ‘enthongpranm 1 year 200,000

Air Fryer diencohuuthinh 6 months 200,000 Counter Table sonpu 18 months 500,000 POS selling limosa 1 year 1,500,000 machine

Refrigerator dienlanhvincool 1 year 1,500,000

Tables for sonpu 18 months 200,000

Due to the nature characteristic of the items, some of them need replacement instead

of maintenance, such as chopsticks, spoons, and plates The fire extinguishers, with a 5-year life cycle, are checked annually by the authorities, which doesn’t incur any expenses Besides, some of the items are just one-time payments like installation, which also don’t need maintenance Therefore, the items with no maintenance intervals will then be replaced every 1 month based on their characteristics For instance, chopsticks, spoons, and plates will be replaced annually Otherwise, the items will either be under maintenance or be replaced, which the following part will analyze further

To select which item should be maintained or be replaced, the group compares the maintenance cost and the price of replacing new utilities, the calculation of salvage value and the price of buying new utilities should be considered

Table 9 Cost of facilities within maintenance duration

Total Item ota Buy new cost | Salvage value | Replacement cost

maintenance cost

Chopsticks - 52,500 - 52,500 Gas - 125,000 - 125,000 Wifi modem 600,000 358,000 71,600 286,400 Fire - - - - Extinguisher

Spoon - 350,000 - 350,000

¬- - 445,500 89,100 356,400 Safety box 600,000 589,000 117,800 471,200 Rice Cooker 900,000 597,000 119,400 3,630,600 Plate - 500,000 - 500,000 Light 900,000 728,000 145,600 582,400 Receipt Printer 1,200,000 878,000 175,600 702,400

SH 1,200,000 1,140,000 228,000 912,000

Air Fryer 2,400,000 1,182,000 236,400 945,600 Counter Table 1,000,000 2,100,000 420,000 1,680,000

eS an 4,500,000 3,500,000 700,000 2,800,000

Refrigerator 4,500,000 4,500,000 900,000 3,600,000

Tables for 4,800,000 4,800,000 960,000 3,840,000 inside

counter under maintenance each time, while replacing the other items after the plan life cycle

3.4.2 Operation

The restaurant plans to have two shifts and work every day of the week Therefore, the number of employees as well as the working shifts will be divided specifically as the table below:

Table 10 General operation information

Staff Hourly Salary

by inflation According to the International Monetary Fund (IMF) [5], Vietnam's inflation is forecast to be 3.7% in 2022 and increase to 3.9% next year From 2024, this rate will drop to

considered

Table 12 Future Worth Calculations Adjusted for Inflation of Hourly salary

Staff Year 1 Year 2 Year 3 Cashier 18,000 18,666 19,394 Waitress/Waiter 20,000 20,740 21,549 Chef/Cooker 22,000 22,814 23,704 Security 20,000 20,740 21,549 Manager 22,000 22,814 23,704 From the table above, there should be 2 alternatives to consider including employee's salary will be calculated on an hourly basis (hourly pay) and employee's salary will be fixed

by month (monthly salary pay) Since working hours are from 9:00 A.M to 9:00 P.M, the total working time for the staff is 12 hours/day, so the average total number of hours in a month of the staffis 12 x 30 = 360 hrs

Table 13 Future Worth Adjusted for Inflation of Hourly salary within a year

Staff Year 1 Year 2 Year 3 Cashier 6,480,000 6,719,760 6,981,831 Waitress/Waiter 7,200,000 7,466,400 7,757,590 Chef/Cooker 7,920,000 8,213,040 8,533,349

lable 14 Monthly payroll

Staff Monthly Salary

Cashier VND 5,000,000

Table 15 Future Worth Adjusted for Inflation of monthly salary within a year

Staff Year 1 Year 2 Year 3 Cashier 5,000,000 5,185,000 5,387,215 Waitress/Waiter 6,000,000 6,222,000 6,464,658 Chef/Cooker 8,000,000 8,296,000 8,619,544 Security 5,500,000 5,703,500 5,925,937 Manager 9,000,000 9,333,000 9,696,987

From the two Future Worth Adjusted for Inflation of two alternatives tables above, it can be calculated that the alternative of monthly salary pay will have a smaller Future Worth Adjusted for Inflation (337,917,066 VND) than the hourly pay (369,996,840 VND)

so the Shop should choose the monthly option However, as the monthly salary required in the contract, the monthly salary pay that the staff receives may not be directly related to the results of their work They may not be satisfied or provide good service that can negatively affect the Fried Chicken Shop

3.4.3 Shipment

There are three alternatives in the Shipment plan: Self-control order and shipment, Self-control order with third-party shipment, and Collaborative order and shipment Each alternative has different fees, commissions, and customer accessibility Based on the aforementioned criteria, the group analyzes and selects the best option that meets the requirements and guarantees the high revenue

Table 16 Self-control characteristics

Type of cost | Quantity Cost Customer Accessibility

Full time: 2.000.000 VND Staff 3

a Part-time: 20%/ order

Gasoline - 500.000 VND Low

Storage box 3 900.000 VND

u Self-control order with third-party shipment

The shop receives orders from Facebook pages, Instagram accounts, or phone numbers, then contact the third party company for delivery

Table 17 Third Party Delivery Company

Delivery Cost Customer Accessibility

18,000 VND / first 3km

Ahamove [7] | 5,000 VND/next kilometer Low

COD: Free if less than 1,000,000 VND

ui Collaborative order and shipment

The third-party collaborator will be fully in charge of processing orders and planning out shipment The shop only needs to receive orders through their applications and pays the commissions as in the collaborative business contract

Commission fee: 27.5%/ Order total cost

Withdrawal fee: 5.500 VND/ time Medium

Registration fee: Free

Gojek Commission fee: 25%/ Order total cost Medium

Other fees: No

Registration fee: Free

Be Commission fee: 25%/ Order total cost Medium Other fees: No

The Trade-off analysis is applied in order to find the best option for Shipment lable 19 Trade-off analysis for shipment alternatives

Criteria Price Time Accessibility

Total Weight 0.4 0.3 0.3

Employee 1 2 1 1.3 Ahamove 2 2 1 1.7 Grab 3 3 3 3 Baemin 2 3 3 2.6 Loship 2 3 2 243 Shopee Food 2 3 2 243 Gojek 2 2 2 2

Be 2 2 2 2

Based on the Trade-off analysis table, the shop selects the collaboration alternative, with one of the largest shipping companies, Grab However, consumers said that they ordered a little over 38% of their meals through the restaurant's website or app, indicating that online ordering is becoming more popular [6] Since the commission fee of the collaborator is calculated from the order total cost, 38% of the revenue will be from online orders

Đề tiếp cận các khách hàng, nhóm quyết định liên hệ với bên thứ ba để quảng cáo và

chọn ra được ba công ty đại diện như bảng bên dưới

Table 20 Marketing alternatives

Company Monthly Cost (VND) Benefit Cost/Benefit (VND) Quang cáo siêu tốc 9,900,000 14 services 707,143 BICT 12,000,000 10 services 1,200,000 Sona Agency 15,000,000 11 services 1,363,636

Alternative Monthly Revenue (VND)