A company is considering switching from a cash only policy to a net 30 credit policy. The price per unit is $800 and the variable cost per unit is $600. The company currently sells 1,000 units per month. Under the proposed policy the company expects to sell 1,500 units per month. The quarterly compounded APR is 16 %. If you were using NPV analysis to decide whether the company should switch to the net 30 (1-month) credit policy, what amount would you use for the cost of switching? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,234,567.89 should be entered as 1234567.89.)

A company is considering switching from a cash only policy to a net 30 credit policy. The price per unit is $800 and the variable cost per unit is $600. The company currently sells 1,000 units per month. Under the proposed policy the company expects to sell 1,500 units per month. The quarterly compounded APR is 16 %. If you were using NPV analysis to decide whether the company should switch to the net 30 (1-month) credit policy, what amount would you use for the cost of switching? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,234,567.89 should be entered as 1234567.89.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Fitzgerald, Incorporated, currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. The required return is .67 percent per month. Price per unit Cost per unit Unit sales per month Current New Policy Policy $170 $173 $ 134 $ 137 1,290 1,320 Calculate the NPV of the decision to change credit policies. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Answer is complete but not entirely correct. $ 646.71
Fizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 2 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are currently $1,000,000, variable cost is $600,000 (note the variable cost % is 60%). The firm expects that the change in credit terms will result in an increase in sales to $1,500,000 per year and variable costs will increase to $900,000 per year. Fizzy projects that 80 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's required return on equal-risk investments is 10 percent. (Assume a 360-day year.) What is the cost (benefit) of the marginal cash discount? O ($18,000) O $24,000 ($22,000) O $30,000
XYZ, Inc., produces and commercializes engines for cars. To stimulate sales, the financial manager is contemplating lengthening its credit period from the existing net 30 terms to net 35 terms. The credit analyst estimates that the new credit policy increases sales by 15 percent. The financial manager asks you to analyze the impacts of the proposed credit change on the firm's value. The variable costs, as a percent of sales, equal 70%. The existing monthly credit sales is $90 million. The existing bad debt loss rate is 29% and will increase by o.75% after lengthening the credit period. The existing credit & collection expenses equal 2.5% of sales and those under 35-day terms will be 3% of sales. The company's cost of capital is presently 10 percent Under the new credit policy, the firm offers a 2% cash discount if they pay within one week and the percent of sales made to cash discount-takers will be 15%. 1) Calculate the NPV of one day's sales under the existing credit policy
A firm currently produces and sells 2,500 units every 60 days. One unit costs $150 to produce and sells for $500. The firm currently offers all its customers a "net 30" credit period and all customers pay on Day 60. In order to boost sales, the firm is considering Project D, which will simply add a window and offering a 10% discount for customers who pay immediately. Research suggests sales will increase sales to 2,600 units and approximately one-quarter of all customers will pay on Day 0 and 75% will pay on Day 30. If the annualized cost of capital is 6%, what is the NPV of Project D? The firm will continue to run to perpetuity. (Assume production and sales occur on Day 0 and repeat every 30 days).
A company is assessing granting credit to a new customer. The variable cost per unit is $88, the current price is $115, the probability of default is 34% and the monthly required return is 4.0%. Calculate the NPV of the switch. Assume the customer will purchase once.
Anti-Corona, a distributor of facial mask, predicts that it will purchase 306,000 masks next year. Anti-Corona estimates that 25,500 masks will be required each month. A supplier quotes a price of $10 per facial mask. The supplier also offers a special discount option: If all 306,000 masks are purchased at the start of the year, a discount of 3% off the $10 price will be given. Anti-Corona can invest its cash at 12% per year. It costs Anti-Corona $300 to place each purchase order. (a)What is the opportunity cost of interest forgone from purchasing all 306,000 units at the start of the year instead of in 12 monthly purchases of 25,500 units per order? (b) Should Anti-Corona purchase 306,000 units at the start of the year or 25,500 units each month? Show your calculations with reasons 4(c) The company is a multinational company with many branches in different countries around the world. The 12% for return on cash is based on expected return of cash in US. The company is planning to…
In an attempt to improve the company's profit performance, management is considering a number of alternative actions.Instructions:Determine the effect of each of the following on monthly profits. Each situation is to beevaluated independently of all others.1.Reduce the unit selling price by P2 per unit. Action will increase monthly sales by20,000 units. Fixed factory overhead will increase by P16,000.
A fleet manager must choose between two trucks to purchase for a company's fleet. The company uses an interest rate of 6% and will keep either truck for 3 years. Truck A costs $29,000 and has a market value of $18,000 after 3 years. Truck B costs $33,000 and has a market value of $20,000 after 3 years. Determine the equivalent uniform annual cost (EUAC) for the truck the fleet manager should buy. Express your answer as a positive number is $ to the nearest $10.
Your company is evaluating a switch from a cash policy to a net 30 policy. The price per unit is $49, and the variable cost per unit is $20. The company currently sells 100 units per month. Under the proposed policy, the company expects to sell 110 units per month. The required monthly return is 2%. a-What is the effective annualized rate for this “loan” triggered by the credit policy?
A company is considering switching from a cash only policy to a net 30 credit policy. The price per unit is $500 and the variable cost per unit is $350. The company currently sells 1,400 units per month. Under the proposed policy the company expects to sell 1,500 units per month. The monthly compounded APR is 18%. Calculate the NPV of this switch. Assume that there are 30 days in one month. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50) .
Sunny Manufacturing is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $220,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 70 percent of sales. a. Compute the incremental income before taxes. $ Incremental income before taxes b. What will the firm's incremental return on sales be if these new credit customers are accepted? (Round the final answer to 2 decimal place.) Incremental return on sales % c. If the receivable turnover ratio is 4 to 1, and no other asset buildup is needed to serve the new customers, what will Sunny Manufacturing's incremental return on new average investment be? (Do round intermediate calculations. Round the final answer to the nearest whole percentage.) Incremental return on new average investment %

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS