Your current sales consist of 27 units per month at a price of $225 a unit. You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy. If you decide to switch your credit policy you also plan to increase the sales price to $240 a unit. If you make the switch you do not expect your total monthly sales quantity to change but you do expect a 3 percent default rate. The monthly interest rate is 1.5 percent. What is the net present value of the proposed credit policy switch?

Question

Quizplus · Accepted Answer

d = ($240 - $225)/$240 = 0.0625NPV = - ($225 F1F1F1S1F1F1F10 27) + {($240 F1F1F1S1F1F1F10 27) F1F1F1S1F1F1F10 [(0.0625 - 0.03)/0.015]} = $7,965

Your Current Sales Consist of 27 Units Per Month at a Price