Question

Mitch is a consultant sent in to identify efficiency improvements at Wharton Airlines. His first idea is to stop giving away complimentary cocktails, wine, and beer on international flights. After running a scenario analysis, Mitch finds that this will save 3,500,000 free drinks per year with an average cost of $0.90 per drink, for a total of $3.15 million saved per year. Instead of giving out complimentary drinks, Mitch estimates that the airline can sell 2,400,000 drinks for a price of $6.50 per drink. Mitch’s boss really likes the idea and agrees to give him a lump sum bonus equal to 0.01% of the present worth of two years of the net change in profits. If the company’s MARR is 12% per year, what is Mitch’s bonus? Express your answer in terms of dollars, rounded to the nearest dollar (e.g., 1234 if you believe the answer to be $1,234).

Answer 1

Mitch is an consultant, who was sent to identify efficiency improvements at Wharton Airlines. His idea was to stop the complementary cocktails and this will save 3500000 free drink per year with an average cost of $0.90 per drink.

Mitch estimates to sell2400000 drink for a price of $6.50 per drink.

So, here Mitch is avoiding free drink so an amount of 3.5 million will be saved.

2400000×6.5+3.5( amount which was saved)

Total answer +0.01% i. e $4710

The answer is $4710.