Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda’s profit margin with the rebate is $6000 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

Question

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Answer 1

Textbook Question

Chapter 3, Problem 1P

Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda’s profit margin with the rebate is $6000 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

Expert Solution

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Expert Solution

Summary Introduction

To discuss: Whether the idea is a good one.

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

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Answer 2

Textbook Question

Chapter 3, Problem 1P

Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda’s profit margin with the rebate is $6000 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

Expert Solution

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Expert Solution

Summary Introduction

To discuss: Whether the idea is a good one.

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

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Answer 3

Textbook Question

Chapter 3, Problem 1P

Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda’s profit margin with the rebate is $6000 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

Expert Solution

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Expert Solution

Summary Introduction

To discuss: Whether the idea is a good one.

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 3, Problem 1P

Honda Motor Company is considering offering a $2000 rebate on its minivan, lowering the vehicle's price from $30,000 to $28,000. The marketing group estimates that this rebate will increase sales over the next year from 40,000 to 55,000 vehicles. Suppose Honda’s profit margin with the rebate is $6000 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

Expert Solution

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Expert Solution

Summary Introduction

To discuss: Whether the idea is a good one.

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Expert Solution

Summary Introduction

To discuss: Whether the idea is a good one.

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

Answer 8

Expert Solution

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Summary Introduction

To determine: The cost and benefits.

Introduction:

While evaluating the firm’s decision, the benefits and incremental costs must be valued, as it is associated with the decisions. When the benefits exceed the cost, then it will be termed to be a good decision.

Answer 13

Answer to Problem 1P

The cost and benefits are $90 million and $80 million.

Answer 14

Explanation of Solution

Given information:

HM Company offers $2,000 rebate on its vehicle minivan. The price of the vehicle drops from $30,000 to $28,000. The sales could increase from $40,000 to $55,000 over the next year. The profit margin is $6,000 per vehicle.

The formula to calculate the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold

Costs=Loss per vehicle×Vehicles sold without rebate

Compute the benefits and cost of the firm:

Benefits=Profit per vehicle×Additional vehicles sold=$6,000×(55,000−40,000)=$60,000×15,000=$90 million

Hence, the benefits are $90 million.

Costs=Loss per vehicle×Vehicles sold without rebate=$2,000×40,000=$80 million

Hence, the costs are $80 million.

Answer 15

Expert Solution

Summary Introduction

To discuss: Whether the idea is a good one.

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Summary Introduction

To discuss: Whether the idea is a good one.

Answer 20

Explanation of Solution

The benefits over costs are $90 million−$80 million=$10 million that is the benefits are more than the costs. This shows that the offering of a rebate is a good idea.

Answer 21

Ch. 3.1 - Prob. 1CC Ch. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CC Ch. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CC Ch. 3.4 - Prob. 2CC Ch. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC

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