Your ﬁrm currently sells 215 units a month at a price of $90 a unit. You think you can increase your sales by an additional 45 units if you switch to a net 30 credit policy. The monthly interest rate is .5
Percent and your variable cost per unit is $60. What is the net present value of the proposed credit
Policy switch?

Question

Quizplus · Accepted Answer

The correct answer is A because the net present value of the proposed credit policy switch is $247,950. 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 calculated by multiplying the additional sales revenue by the present value factor for the monthly interest rate and the number of months in a year. The present value of the additional variable costs is calculated by multiplying the additional variable costs by the present value factor for the monthly interest rate and the number of months in a year.

Your ﬁRm Currently Sells 215 Units a Month at a Price