Cape May Products currently sells 650 units a month at a price of $59 a unit. The firm believes it can increase its sales by an additional 125 units if it switches to a net 30 credit policy. The monthly interest rate is 0.35 percent and the variable cost per unit is $38. What is the incremental cash inflow from the proposed credit policy switch?
Incremental cash flow = ($59 - $38) (125) = $2,625
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64.
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Polly's Home Accents currently sells 320 units a month at a price of $59 a unit. Polly thinks she can increase her sales by an additional 55 units if she switches to a net 30 credit policy. The monthly interest rate is 0.4 percent and the variable cost per unit is $32. What is the net present value of the proposed credit policy switch?
NPV of switch = - [($59 × 320) + ($32 × 55)] + [($59 - $32) × 55]/0.004 = $350,610
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65.
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Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit. The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy. The monthly interest rate is 0.5 percent and the variable cost per unit is $480. What is the net present value of the proposed credit policy switch?
NPV = - [($729 × 280) + ($480 × 40)] + [($729 - $480) × 40]/0.005 = $1,768,680
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