BK Books is an online book retailer that also has 10,000 \"bricks and mortar\"ou

Question

BK Books is an online book retailer that also has 10,000 "bricks and mortar"outlets worldwide. You are a risk-neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top MBA programs in your area. Thanks to your screening mechanisms and contacts, the students you interview ultimately differ only with respect to the wage that they are willing to accept. About 10 percent of acceptable candidates are willing to accept a salary of $70,000, while 90 percent demand a salary of $100, 000. There are two phases to the interview process that every interviewee must go through. Phase I is the initial one hour on campus interview. All candidates interviewed in Phase I are also invited to Phase II of the interview, which consists of a five hour office visist. In all, you spend six hours interviewing each candiddate and value this time at $900. In addition, it costs a tatal of $4,900 in travel expenses to interview each candidate. You are very impresses with the first interviewee completing both phases of BK Books's interviewing process, and she has indicated that her reservation salary is $100,000. Shold you make her an offer at that salary or continue the interviewing process? Explain in detail.

Explanation / Answer

To make the decision it is required to do a cost benefit analysis of an extra interview/research that we can do for fidning a financial analyst who would be agreed to work at $70,000.

Expected benefit from additional search of a similar impressive interviewee, who also get agreed at &70,000 salary is percentage of students willing to accept 70,000 salary * (highest salary-lowest salary)

= 10%(100,000-70,000) = $3000

and Cost of another search/interview = cost of time + cost of travel = $900+$4900 = $5800

Here cost exceed expected benefit. Thus we should stop our research and should hire that interviewee.

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