Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1.35 percent. What is the NPV of a credit sale of one item?
A) $3.18
B) $2.87
C) $3.38
D) $2.92
E) $3.06

Question

Quizplus · Accepted Answer

The NPV of a credit sale is calculated as the present value of the expected cash inflow minus the cost. The expected cash inflow is $4.99 * 0.96 = $4.7904. The present value of this cash inflow, discounted at the monthly interest rate of 1.35%, is $4.7904 / (1 + 0.0135) = $4.726. The cost is $1.67. Therefore, the NPV is $4.726 - $1.67 = $3.056, which is approximately $3.06.

Assume All Sales Are One-Time Credit Sales with a Probability