Question

Let x be 2. Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1+x percent. What is the NPV of a credit sale of one extra unit?

A) $3.073

B) $3.026

C) $2.981

D) $2.936

E) $2.892

Answer 1

assuming, one-time credit sale = one month credit sale

Monthly Interest rate would be = 1+2(given in question)

= 3%

NPV of Sales price = 4.99*0.96/(1+0.03)

= 4.7904/1.03

= 4.651

Note: Sales would be realised after a month therefore the NPV has calculated by selling price per unit/1.03 and as per question it would be 96% of sales price therefore net present value of sales price per unit multiplied by 0.96.

less variable cost = 1.67

So NPV of a credit sale of one extra unit = NPV of sales price - variable cost

= 4.651 - 1.67

= 2.981

option (C) $2.981 should be the right answer.

Note: assuming cost would be occured at time 0 therefore no need to calculate present value.

Please check with your answer and let me know.