Question

Homework: MEL Mod 3 Ch 5 HW Save Score: 0 of 5 pts 1 of 18 (0 complete) HW Score: 0%, 0 of 100 p Problem 5-3 (book/static) 5 Question Help Josh Ritchey has just been hired as a cost engineer by a large airlines company. Josh's first idea is to quit giving complimentary cocktails, wine, and beer to the international flying public. He calculates this will save 5,000,000 drinks per year, and each drink costs $0.50 for a total of $2.5 million per year. Instead of complimentar drinks, Josh estimates that the airlines company can sell 2,000,000 drinks at $5.00 per drink. The net savings would amount to $12.5 million per year! Josh's boss really likes the idea and agrees to give Josh a lumpsum bonus now equaling 0.1% of the present equivalent worth of three years of net savings. If the company's MARR is 20% per year, what is Josh's bonus? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 20% per year. Josh's bonus is $ (Round to the nearest dollar.)

Answer 1

Josh's bonus is 0.1% of PW of net saving of 3 years.

Net saving = 12.5 million ( each 3 year)

Josh's bonus = 12.5 million*(P/A, 20%,3) * 0.1%

= 12.5 million *( P/A, 20%,3)*0.001

= 12.5 million * [ ((1+0.2)³ - 1) / ((0.2)*(1.2)³ )] *(0.001) = $26331.01 = $26331 ( rounded to nearest dollar)