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I need an explanation for this Business question to help me study.
Honda Motor Company is considering offering a $3,000 rebate on its minivan, lowering the vehicle’s price from $32,000 to $29,000. The marketing group estimates that this rebate will increase sales over the next year from $42,000 to $58,000 vehicles. Honda’s profit margin with the rebate is $4,000 per vehicle. If the change in sales is the only consequence of this decision, what are its benefits and costs? Is it a good idea
The benefits are $29.4 million. (round to 1 decimal)
Profit if (a) Honda had not given the rebate, it would have earned a profit of $7000 per minivan. Sales= 42,000--------- Hence total profit= 42000 x 7000 =29.4 million
. With the rebate, its sales increase but profit decreases
Here profit= 4000PER VEHICLE X 16,000 ADDITIONAL VEHICLE SOLD= 64.0 MILLION
THE COSTS ARE$_________. MILLION. ( ROUND TO ONE DECIMAL PLACE.)
2. Suppose the current market price of corn is $4.48 per bushel, your firm has a technology that can convert, 1 bushel of corn 3 gallon of ethanol. If the cost of conversion is $ 1.71 per bushel, at what market price of ethanol does conversion become attractive?
The price at which the con version becomes attractive is$ ____________ per gallon. (round to nearest cent.). The breakeven point is $ ______ /gallon of ethanol. Beyond that anything is acceptable to make a profit
3. Suppose the risk-free interest rate is 4%
A. Having $200 today is equivalent to having what amount in one year?
It is equivalent to having $_______________ in one year.(round to the nearest cent.)
5. Your firm has identified three potential investment projects. The project and their cash flows are shown below:
Project Cash Flow Today Millions Cash Flow in One Year Million
A. -$15.00 $15.00
B. $2.00 $2.00
C. $15.00 -$15.00
Supposed all cash flow are certain and the risk-free, interest rate is 5%.
A. What is the NPA of each project?
The NPV of project A is$______ million. (round to 2 decimal places)
6. What is the present value of $8,000 received
A. 14 years from today when the interest rate is 10% per year.=
B. 23 years from today when the interest rate is 12% per year?=
c. 7 years from today when the interest rate 5% per year?=
a. The present value is $___________. (round to the nearest dollar.)
First Year _________A
Second Year ______B
Third Year =_______C
8. Suppose you receive $100 at the end of each year for the next three years
A. If the interest rate is 8%, what is the present value of these cash flows?
The present value of these cash flows is $ ____________(round to the nearest cent.)
9. You have just received a windfall from an investment you made in a friend’s business. He will be paying you $11,000 at the end of this year, $22,000 at the end of the following years, and $33,000 at the end of the year. After that (three years from today). The interest rate is 6.0% per year(round to the nearest dollars.)
A. What is the present value of your windfall?_______. (round to the nearest dollars.)
Here is the cash flow timeline for part(a):
Year ) 0 1 2 3
Cash Flow PV=? 11,00 22,000 33,000
The present value of your windfall is $____________.(round to the nearesr dollar.)
The present value of your windfall is found by using this formula:
C1 +C2 +C3
PV=
(1+r)+ (1+r)2+(1+r)3
B. What is the future value of your windfall in three years(round to the date of the last payment)?
The future value of your windfall in three years is $_______.(round to the nearest dollar.)
Here is the cash flow timeline for part (b):
0 1 2 3
Years
Cash Flow 11,000 22,000 33,000
FV=?
The future value value of your windfall in three years is $_________.(round to the nearest dollar.)
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