Tungsten Chemicals is considering changing its credit policy, so it conducted a net present value (NPV) analysis to compare the proposed credit policy with the existing credit policy. The results of the analysis shows that NPVProposed Policy - NPVExisting Policy = $20 per day. If Tungsten's required rate of return is 10 percent, what will be the change in the firm's value if the proposed credit policy is implemented? In you computations, use a 360-day year.

Question

Quizplus · Accepted Answer

The change in the firm's value if the proposed credit policy is implemented can be calculated by multiplying the daily increase in NPV by the number of days in a year. Given that NPVProposed Policy - NPVExisting Policy = $20 per day and using a 360-day year, the calculation is $20 * 360 = $7,200. However, the correct interpretation of the question's details leads to the understanding that the annual increase in value is what's sought, making the correct answer $7,200, which corresponds to option E, not B as initially indicated. This was a mistake in the selection process. The correct choice should have been E, reflecting the accurate calculation based on the provided information.

Tungsten Chemicals Is Considering Changing Its Credit Policy, So It