Techstreet.com is a small web design business that provides services for two main types of websites:...

Techstreet.com is a small web design business that provides services for two main types of websites: brochure sites and e-commerce sites. One package involves an up-front payment of $90,000 and monthly payments of 1.4¢ per “hit.” Kathy Cutler has a new eBay franchise and is considering the e-commerce package. She expects to have at least 6000 hits per month, and hopes that 1.5% of the hits will result in a sale. If the average income from sales (after fees and expenses) is $150, what rate of return per month will Kathy realize if she uses the website for 2 years?

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Expert Solution

Answer:

Rate of return=Profit per month/Up-front payment

Profit per month=Average income per month-Monthly cost.

Average income per month=Average income from sales*Sales per month

Sales per month=1.5% of hits per month=1.5% of 6000=90.

Average income from sales(given)=$150.

Average income per month=90*$150=$13,500.

Monthly cost=Cost per hit*number of hits per month=1.4c*6000=$84.

Profit per month=$13500-84=$13416.

Rate of return=$13416/$90000=14.90%

Rahul Sunny answered 1 year ago

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