Honda Motor Company Case Study

Business & Finance
Price: $5 USD

Question description

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



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


  (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


Cash Flow  11,000  22,000  33,000


The future value value of your windfall in three years is $_________.(round to the nearest dollar.)     

Tutor Answer

(Top Tutor) Daniel C.
School: Rice University
Studypool has helped 1,244,100 students
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1829 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors