Question

Solar Engines manufactures solar engines for tractor-trailers.
Given the fuel savings available, new orders for 160 units have
been made by customers requesting credit. The variable cost is
$10,600 per unit, and the credit price is $13,000 each. Credit is
extended for one period. The required return is 1.4 percent per
period. If Solar Engines extends credit, it expects that 25 percent
of the customers will be repeat customers and place the same order
every period forever, and the remaining customers will place
one-time orders.

Calculate the NPV of the decision to grant credit. (Do not
round intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)

NPV

$

Answer #1

Repeat customers = 160 x 25% = 40 units

Non - repeat customers = 160 - 40 = 120 units

Now, the company expects contribution, i.e., Sales
*minus* variable costs from repeat customers
indefinitely.

Present value of indefinite cash flows = Cash flows / interest rate

Present value of Repeat orders = [ 40 x ($13000 - $10600) ] / 0.014 = $6,857,142.86

Also, non - repeat customers will pay after one period -

Present value of sales from non - receipt customers = [ 120 x $13000 ] / (1 + 0.014) = $1,538,461.54

Initial outflow = Total Variable cost = 160 x $10600 = $1,696,000

NPV = (-)Initial outfow + Present value of repeat orders + Present value of sales from non - repeat orders

or, NPV = (-)$1,696,0000 + $6,857,142.86 + $1,538,461.54 =
**$6,699,604.40**

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been made by customers requesting credit. The variable cost is
$8,800 per unit, and the credit price is $10,750 each. Credit is
extended for one period. The required return is 1.4 percent per
period. If Solar Engines extends credit, it expects that 35 percent
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every period forever and the remaining...

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Given the fuel savings available, new orders for 100 units have
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a) Zoey Enterprises manufactures solar engines for helicopters.
Given the fuel savings available, new orders for 125 units have
been made by customers requesting credit. The variable cost is
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Zoey Enterprises manufactures solar engines for helicopters.
Given the fuel savings available, new orders for 125 units have
been made by customers requesting credit. The variable cost is
$11,400 per unit, and the credit price is $13,000 each. Credit is
extended for one period. The required return is 1.9 percent per
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is there a reason why this question has really varied answers in
the solutions by other chegg teachers?
please help with the right answer, it is confusing.
thanks
a) Zoey Enterprises manufactures solar engines for helicopters.
Given the fuel savings available, new orders for 125 units have
been made by customers requesting credit. The variable cost is
$11,400 per unit, and the credit price is $13,000 each. Credit is
extended for one period. The required return is 1.9 percent per...

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( If your answer is negative, use a negative...

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