Weisbrough United currently has a cash sales only policy. Under this policy, the firm sells 410 units a month at a price of $219 a unit. The variable cost per unit is $140 and the carrying cost per unit is $3.30. The monthly interest rate is 1.3 percent. The firm believes it can increase its sales to 475 units a month if it institutes a net 30 credit policy. What is the net present value of the switch using the one-shot approach?
Monthly benefit = [($219 × 475)/1.013] - [$140 × 475] - [($219 - $140) × 410] = $3,800.03; NPV of switch = $3,800.03 + ($3,800.03/0.013) = $296,110
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79.
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Under the current cash sales only policy Blue Bird, Inc., will sell 215 units a month at a price of $469 each. The variable cost per unit is $305 and the monthly interest rate is 1.7 percent. Based on a recent survey, the firm believes it can sell an additional 36 units per month if it offers a net 30 credit policy. What is the net present value of the switch using the one-shot approach?
Monthly benefit = {[$469 × (215 + 36)]/(1 + 0.017)} - {$305 × (215 + 36)} - {($469 - $305) × 215} = $3,936.23; NPV of switch = $3,936.23 + ($3,936.23/0.017) = $235,479
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80.
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Under your current cash sales only policy you sell 132 units a month for a total sales value of $9,900. Your variable cost per unit is $44 and your monthly interest rate is 1 percent. Based on a recent survey, you believe that you can sell an additional 25 units per month if you offer a net 30 credit policy. What is the net present value of the proposed switch using the accounts receivable approach?
P = $9,900/132 = $75
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