You are currently selling 72 units a month at a price of $210 a unit.Your variable cost of each unit is $130.If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase to a total of 95 units per month.The monthly interest rate is 1.5 percent.What is the net present value of this proposed switch using the accounts receivable approach?
A)$104,557
B)$114,829
C)$134,822
D)$136,516
E)$141,520

Question

Quizplus · Accepted Answer

The net present value of the proposed switch is $104,557. 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 a net 30 policy. The present value factor for a net 30 policy is 0.9852. The present value of the additional variable costs is calculated by multiplying the additional variable costs by the present value factor for a net 30 policy. The present value factor for a net 30 policy is 0.9852.

You Are Currently Selling 72 Units a Month at a Price