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

Want to see more full solutions like this?

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.

Want to see more full solutions like this?

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

Students have asked these similar questions

Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.

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.

Want to see more full solutions like this?

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

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.

Want to see more full solutions like this?

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.

Want to see more full solutions like this?

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

Concept explainers

Videos

Answer to Problem 1P

Explanation of Solution

Explanation of Solution

Want to see more full solutions like this?

Chapter 3 Solutions