Honda Motor Company is considering offering a $ 2 comma 000$2,000 rebate on its

ID: 2818973 • Letter: H

Question

Honda Motor Company is considering offering a

$ 2 comma 000$2,000

rebate on its minivan, lowering the vehicle's price from

$ 30 comma 000$30,000

$ 28 comma 000$28,000.

The marketing group estimates that this rebate will increase sales over the next year from

40 comma 00040,000

55 comma 00055,000

vehicles. Suppose Honda's profit margin with the rebate is

$ 6 comma 000$6,000

per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea? Hint: View this question in terms of incremental profits.

The cost of the rebate will be $..........million. (Round to one decimal place.)

Explanation / Answer

profit from increased sales

15000*6000

90000000

cost of rebate

40000*2000

80000000

benefit from the decision

10000000