Homework Help is Here – Start Your Trial Now!
Business
Accounting
A seller is considering the effect on firm value from transitioning a long- time customer from cash terms to credit terms. For years, the customer has purchased 20 units every 60 days. The seller believes that extending credit terms of net 60 days will encourage the customer to increase their purchase quantity to 25 units. Each unit sells for $5 and the seller incurs immediate variable costs of $3 per unit. The seller has an annual opportunity cost rate of 3.65%. Assuming that the customer just placed an order on cash terms, what is the NPV of extending credit if sales continue every 60 days in perpetuity? Select one: a. -$1,551.66 b. $1,551.66 C. $6,706.67 d. $8,258.33

A seller is considering the effect on firm value from transitioning a long- time customer from cash terms to credit terms. For years, the customer has purchased 20 units every 60 days. The seller believes that extending credit terms of net 60 days will encourage the customer to increase their purchase quantity to 25 units. Each unit sells for $5 and the seller incurs immediate variable costs of $3 per unit. The seller has an annual opportunity cost rate of 3.65%. Assuming that the customer just placed an order on cash terms, what is the NPV of extending credit if sales continue every 60 days in perpetuity? Select one: a. -$1,551.66 b. $1,551.66 C. $6,706.67 d. $8,258.33

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Please I need fast please I humble request 

A seller is considering the effect on firm value from transitioning a long- time customer from cash terms to credit terms. For years, the customer has purchased 20 units every 60 days. The seller believes that extending credit terms of net 60 days will encourage the customer to increase their purchase quantity to 25 units. Each unit sells for $5 and the seller incurs immediate variable costs of $3 per unit. The seller has an annual opportunity cost rate of 3.65%. Assuming that the customer just placed an order on cash terms, what is the NPV of extending credit if sales continue every 60 days in perpetuity? Select one: a. -$1,551.66 b. $1,551.66 C. $6,706.67 d. $8,258.33
Transcribed Image Text:A seller is considering the effect on firm value from transitioning a long- time customer from cash terms to credit terms. For years, the customer has purchased 20 units every 60 days. The seller believes that extending credit terms of net 60 days will encourage the customer to increase their purchase quantity to 25 units. Each unit sells for $5 and the seller incurs immediate variable costs of $3 per unit. The seller has an annual opportunity cost rate of 3.65%. Assuming that the customer just placed an order on cash terms, what is the NPV of extending credit if sales continue every 60 days in perpetuity? Select one: a. -$1,551.66 b. $1,551.66 C. $6,706.67 d. $8,258.33
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS