Economics Problem. Please show work Thank You very Much Josh Ritchey has just be

Question

Economics Problem. Please show work Thank You very Much

Josh Ritchey has just been hired as a cost engineer by a large airlines company. Josh's first idea is to quit giving complimentary cocktails, wine, and beer to the international flying public. He calculates this will save 5,400,000 drinks per year, and each drink costs $0.60, for a total of $3.24 million per year. Instead of complimentary drinks, Josh estimates that the airlines company can sell 2,100,000 drinks at $4.50 per drink. The net savings would amount to $12.69 million per year! Josh's boss really likes the idea and agrees to give Josh a umpsurm bonus now equaling 0.1% of the present e una ent or two years fre avl the company's MARR is 25% per year what is Josh's bonus?

Explanation / Answer

Annual net savings = Saving from stopping complimentary drinks + Revenue from selling additional drinks

= $12.69 million = $12,690,000 [Given in question]

Present Equivalent worth (PW) of 2 years of annual savings ($) = 12,690,000 x P/A(25%, 2)

= 12,690,000 x 1.44 [From P/A table]

= 18,273,600

Lump-sum bonus = $18,273,600 x 0.1% = $18,273,600 x 0.001

= $18,273.6

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