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