Your current sales consist of 32 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?
A)$6,727
B)$6,893
C)$7,965
D)$9,440
E)$9,481

Question

Quizplus · Accepted Answer

d = ($240 - $225)/$240 = 0.0625NPV = - ($225 × 32) + {($240 × 32) × [(0.0625 - 0.03)/0.015]} = $9,440

Your Current Sales Consist of 32 Units Per Month at a Price