Question

1. Honda Motor Company is considering offering a $ 2100 rebate on its​ minivan, lowering the​ vehicle's price from $ 30300 to $ 28200. The marketing group estimates that this rebate will increase sales over the next year from 41600 to 54100 vehicles. Suppose​ Honda's profit margin with the rebate is $ 5940 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?​ Hint: View this question in terms of incremental profits. The cost of the rebate will be ​$ ______ million. ​(Round to one decimal​ place.)

2. Suppose your employer offers you a choice between a $ 5100 bonus and 100 shares of the​ company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $ 62.52 per share.

a. If you receive the stock bonus and you are free to trade​ it, which form of the bonus should you​ choose? What is its​ value?

If you are free to trade the​ stock, the value of the stock bonus today is

​$________​(Round to the nearest​ dollar.)

b. If you receive the stock bonus and you are required to hold it for at least one​ year, what can you say about the value of the stock bonus​ now? What will your decision depend​ on?

Answer 1

1	A	Total number of vehicles to be sold with rebate	54100
	B	Cost of rebate per vehicle	$2,100
	C=A*B	Total cost of rebate	$113,610,000
	D	Incremental Sales	12,500	(54100-41600)
	E=D*$5940	Incremental profit because of rebate	$        74,250,000
		Cost of the rebate	$113.61	million
		Incremental profit	$                   74.25	million
		It is not a good idea
		Cost is more than the benefit(incremental profit)