Reference no: EM131791583

"We want to free ships within a short period of time instead of keeping them for a long time and incurring more expenses in guarding them. We have to free them at a lower ransom so that we can hijack more ships." At first glance this may sound reasonable because guarding ships (storage) is expensive. But so is capturing ships! Depending on the values, a 25% increase in capturing costs is not likely to offset a 20% reduction in storage costs and a 20% reduction in per ship revenue. Assume the typical ransom is $2 million. Guards typically take $300,000 ($2000 per day) and the initial labor and weapons to capture the ship costs $70,000. Before the ransom reductions, then, a typical ship earned: 2M in ransom - 70K in capture - 300K in guarding = $1,630,000 and they turned over 6 ships each month. Under the new structure they earn only 80% of the old ransom value but also only pay 80% of the old guarding costs and the same capture costs. They now turn over 7.5 ships per month. How much more money are they making now each month? If you get a negative (i.e. that they are making less money) enter it as a negative value: -400000.