The financial manager for "ERR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. 'ERR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholder's wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information: Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital = 10% Inventory turnover =18.25 1- Calculate the daily NPV of the current terms. 2- Calculate the daily NPV of the proposed terms. 3- Based on your own calculations, what is your recommendation? Why? 4- Calculate the NPVCCP of the present terms. Interpret. 5- Calculate the ANPVCCP-aggregate of the Company. Interpret.
The
Purchase amount = 40% of sales amount
Annual sales amount = $31,025,000
The annual cost of capital = 10%
Inventory turnover =18.25
1- Calculate the daily
2- Calculate the daily NPV of the proposed terms.
3- Based on your own calculations, what is your recommendation? Why?
4- Calculate the NPVCCP of the present terms. Interpret.
5- Calculate the ANPVCCP-aggregate of the Company. Interpret.
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