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honda - Thus Benefit – Cost = \$90 million – \$80 million...

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The benefit of the rebate is that Honda will sell more vehicles and earn a profit on each additional vehicle sold: Benefit = Profit of \$6,000 per vehicle × 15,000 additional vehicles sold = \$90 million. The cost of the rebate is that Honda will make less on the vehicles it would have sold: Cost = Loss of \$2,000 per vehicle × 40,000 vehicles that would have sold without rebate = \$80 million.
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Unformatted text preview: Thus, Benefit – Cost = \$90 million – \$80 million = \$10 million, and offering the rebate looks attractive. (Alternatively, we could view it in terms of total, rather than incremental, profits. The benefit as \$6000/vehicle × 55,000 sold = \$330 million, and the cost is \$8,000/vehicle × 40,000 sold = \$320 million....
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