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 2% 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 policydits)
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 2% 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 policydits)
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 10P
Related questions
Question
![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 2% 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 policydits)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff26ffffd-e452-4a18-a363-aa95ab4b3a82%2Fa6612357-3865-4c8d-8f9e-a078af0f2013%2F9w9kffi.png&w=3840&q=75)
Transcribed Image Text: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 2% 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 policydits)
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
Step 1
Given information is:
Existing monthly sales = $90 million
Variable costs = 70% on Sales
New bad debt loss rate = 2.75%
Credit & Collection Expenses = 3%
Cash discount to 15% customers = 2%
Step by step
Solved in 2 steps
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