Under your current cash sales only policy you sell 280 units a month at a price of $35. Your variable cost per unit is $21 and your monthly interest rate is 1 percent. Based on a recent survey, you believe that you can sell an additional 85 units per month if you offer a net 30 credit policy. What is the net present value of the switch using the one-shot approach?

Question

Quizplus · Accepted Answer

The net present value of the switch is $107,415. This is calculated by taking the present value of the additional sales revenue minus the present value of the additional variable costs. The present value of the additional sales revenue is $35 * 85 * 12 / (1 + 0.01)^1 = $35,700. The present value of the additional variable costs is $21 * 85 * 12 / (1 + 0.01)^1 = $21,785. The net present value is $35,700 - $21,785 = $107,415.

Under Your Current Cash Sales Only Policy You Sell 280