Answer:
The cost of the rebate is that Honda will sell more vehicles and lose on each additional vehicle sold.
Explanation:
The cost-benefit analysis is a systematic approach that involves finding the marginal costs and marginal benefits associated with a particular decision, and then compare the benefits against the costs to determine whether the decision should be pursued.
To determine the costs and benefits in terms of incremental profits;
Benefit = Profit of $5,090 per vehicle × 13,500 (53200 - 39700) additional vehicles sold = $68,715,000
The cost of the rebate is that Honda will make less on the vehicles it would have sold:
Cost = Loss of $1,800 per vehicle × 39,700 vehicles that would have sold without rebate = $71,460,000.
There, Benefit - Cost = $ (68,715,000 - 71,460,000) = - $2,745,000 and offering the rebate does not look attractive.
The rebate being offered is not a good idea as the cost outweighs the benefit.
