Blossom Inc. currently grants no credit, but it is considering offering new credit terms of net 30. As a result, the price of its product will increase by $2 per unit. The original price per unit is $40. Expected sales will increase by 1.000 units per year. The original sales are 11.000 units. Variable costs will remain at $25 per unit and bad debt losses will amount to $2.000 per year. The firm will finance the additional investment in receivables byysing a line of credit, which charges 5-percent interest. The firm's tax rate is 20 percent. Calculate the NPV. (Assume Blossom benefits from the credit policy change indefinitely) (Round answer to 2 decimal places, eg 15.75. Enter negative amounts using either a negative sign preceding the number eg -45 or parentheses eg (45)) NPV $ 513836 Should the firm begin extending credit under the terms described? Yes v
Blossom Inc. currently grants no credit, but it is considering offering new credit terms of net 30. As a result, the price of its product will increase by $2 per unit. The original price per unit is $40. Expected sales will increase by 1.000 units per year. The original sales are 11.000 units. Variable costs will remain at $25 per unit and bad debt losses will amount to $2.000 per year. The firm will finance the additional investment in receivables byysing a line of credit, which charges 5-percent interest. The firm's tax rate is 20 percent. Calculate the NPV. (Assume Blossom benefits from the credit policy change indefinitely) (Round answer to 2 decimal places, eg 15.75. Enter negative amounts using either a negative sign preceding the number eg -45 or parentheses eg (45)) NPV $ 513836 Should the firm begin extending credit under the terms described? Yes v
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 12P
Related questions
Question
![Blossom Inc. currently grants no credit, but it is considering offering new credit terms of net 30. As a result, the price of its product will
increase by $2 per unit. The original price per unit is $40. Expected sales will increase by 1,000 units per year. The original sales
are 11.000 units. Variable costs will remain at $25 per unit and bad debt losses will amount to $2.000 per year. The firm will finance
the additional investment in receivables by using a line of credit, which charges 5-percent interest. The firm's tax rate is 20 percent.
Calculate the NPV. (Assume Blossom benefits from the credit policy change indefinitely.) (Round answer to 2 decimal places, e.g. 15.75.
Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg.(45))
NPV $
513836
Should the firm begin extending credit under the terms described?
Yes](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf7465a1-1f06-4ade-b6d3-6ab1782d9bd3%2F83c1dfc4-939b-46c7-aee7-5b031ab84209%2F8jv90gi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Blossom Inc. currently grants no credit, but it is considering offering new credit terms of net 30. As a result, the price of its product will
increase by $2 per unit. The original price per unit is $40. Expected sales will increase by 1,000 units per year. The original sales
are 11.000 units. Variable costs will remain at $25 per unit and bad debt losses will amount to $2.000 per year. The firm will finance
the additional investment in receivables by using a line of credit, which charges 5-percent interest. The firm's tax rate is 20 percent.
Calculate the NPV. (Assume Blossom benefits from the credit policy change indefinitely.) (Round answer to 2 decimal places, e.g. 15.75.
Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg.(45))
NPV $
513836
Should the firm begin extending credit under the terms described?
Yes
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