Cindy Havana is a vice president of finance for Captain Wesley’s 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):
Based on the limited information provided, give Cindy an estimate of the net effect of the coupon campaign on annual profit. (Ignore taxes.)