Question

If you want to initiate cargo service, you must budget at least $10,000 per quarter for cargo marketing. Spending more than $10,000 will provide additional funds for promoting the new service. Potential cargo revenues are estimated at $25,000 per route per quarter, but it will take about three quarters to build up the business and generate a profit.

Airline X provides service on six different routes. What is the potential revenue the company could take in from the cargo business?

Answer 1

Untill the 3rd quarter, my earnings would be nothing. Because it is the time for build up the business. So my spendings would be atleast $30,000 at the end of third quarter. And my first earnings at the end of 3rd quarter is $25,000 per route, per quarter.

Totally there are six routes. It didn't mention that, whether the proprietor invested in all the six routes and the respective earnings. So as a whole,.the revenue would be $150,000(25000*6). The spending would be $10,000 for the quarter. The profit upto the third quarter would be $120,000(150,000- 30,000). The total spendings amount to $30,000 upto the 3rd quarter.

For estimating one year the revenue would be $300,000 ((25000*6)+(25000*6)). The expenses would be $40,000. So the profit is $260,000(300,000-40,000).