Currently, your ﬁrm sells 170 units a month at a price of $140 a unit. You think you can increase your sales by an additional 30 units if you switch to a net 30 credit policy. The monthly interest rate is .6
Percent and your variable cost per unit is $100. What is the net present value of the proposed credit
Policy switch?

Question

Quizplus · Accepted Answer

The net present value of the proposed credit policy switch is $173,200. This is because the increase in sales will generate additional revenue of $4,200 per month ($30 units x $140 per unit). The cost of the credit policy switch will be the interest expense on the accounts receivable, which will be $840 per month ($4,200 x .6% x 30 days). The net benefit of the credit policy switch will be $3,360 per month ($4,200 - $840). The net present value of this benefit is $173,200 ($3,360 x 12 months / .6%).

Currently, Your ﬁRm Sells 170 Units a Month at a Price