Question:
Cindy Havana is a vice president of financial for Captain Wesleys Restaurant, a chain of 12 restaurants on the East Coast, including 5 restaurants in Florida. The company is considering a plan whereby customers will be mailed coupons in the month of their birthday, entitling them to 20 percent off their total bill. The cost of the mailing (printing, paper, postage, etc.) is estimated to be $500,000.Cindy estimates that the campaign will result in an annual increase in sales of $3,000,000 at normal prices ($2,400,000 after the 20 percent discount).As part of her analysis of the financial impact of the plan, Cindy ran a regression of total monthly operating costs on sales using data from the past year. The results of this analysis are indicated in the Summary Output table (see next page):
Required
Based on the limited information provided, give Cindy an estimate of the net effect of the coupon campaign on annual profit. (Ignoretaxes.)
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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Operating Costs $3,809,720 January February March April May June July August September October November December 3,821,100 3,969,000 4,007,225 3,895,000 4,221,240 4,343,200 4,177,360 4,070,000 4,035,600 3,795,850 4,105,200 48,250,495 ummary Output Sales 4,141,000 4,065,000 4,410,000 4,502,500 4,750,000 4,852,000 4,880,000 4,747,000 4,625,000 4484,000 4,265,000 4,665,000 54,386,500 Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 0.851987887 0.725883359 0.698471695 95415.03995 ANOVA Df MS Regression Residual Total 1 2.41082E+11 2.41082E+11 24.4808206 10 91040298485 9104029848 11 3.32122E+11 P-value 1538945.78 483092.898 3.185610441 0.00972635 0.547620193 0.106417667 5.145951869 0.00043399 Coefficients Standard Error Intercept Sales