You are currently selling 75 units a month at a price of $495 a unit. Your variable cost of each unit is $360.If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase by 20 percent. Your monthly interest rate is 1 percent. What is the net present value of
This proposed switch using the accounts receivable approach?

Question

Quizplus · Accepted Answer

The net present value (NPV) of the proposed switch can be calculated by considering the increase in sales, the change in cash flow due to the net 30 policy, and the cost of capital. The increase in sales is 20%, so the new sales volume is 90 units (75 units * 1.20). The contribution margin per unit is $135 ($495 - $360). The additional contribution margin from the increased sales is $2,700 (15 units * $135). The NPV is calculated by discounting this additional cash flow at the monthly interest rate of 1%. The correct NPV is $159,975.

You Are Currently Selling 75 Units a Month at a Price