Incremental revenue and saving on stadium rental costs

Question

Hi!

One question is why is in a second part revenue from building a stadium referred to as "incremental"?

Then, although intuitively OK, I have trouble fully accepting that saving on stadium rental costs is included now in this "incremental revenue".

Can someone shed more light of why is so?

Thanks!

Answer 1

Hello there,

Here there are the answers to your questions:

The revenue form building a stadium is defined "incremental" because you are considering the same source of revenues (e.g. students fees) plus a major income from selling more tickets and the saving of the rental. That's way you calculate the total revenues from selling tickets and you do: New revenues - Old revenues = Savings of rental + New tickets - Old tickets You can consider just the incremental revenues because you are comparing 2 options and instead of comparing the total revenues and costs, you just compare the additional revenues and costs.
Saving on stadium rental is not a real revenue, you are right. They should have chosen another term, but it goes in the business case with "positive" sign. You have basically to compare revenues and savings with costs.

Does it make sense?

Hope it helps,
Luca

Answer 2

It is just a matter of interpretation. Doesn't make a difference mathematically. But you are right, it probably makes more sense to view this as an item that decreases the incremental total costs by $1.2m.

Cheers, Sidi

Answer 3

I am with Sidi here, seems to me a wording issue more than any other thing.

If this happens in the interview, don´t worry, since you have the possibility to double-check on the spot with the interviewer -this is the problem when you are alone with your screen-.

Cheers!

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