Question

# Sanchez, Inc., is considering a change in its cash-only sales policy. The new terms of sale...

Sanchez, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is .82 percent per month. Current Policy New Policy Price per unit \$ 960 \$ 960 Cost per unit \$ 765 \$ 765 Unit sales per month 1,020 1,100 Calculate the NPV of the decision to switch. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Cost of Switching = Cost of Lost Sales + Incremental Variable Costs
Cost of Switching = (\$960 * 1,020) + \$765 * (1,100 – 1,020)
Cost of Switching = \$979,200 + \$61,200
Cost of Switching = \$1,040,400

Benefit of Switching = (Unit Sales – Unit Variable Cost)* Incremental Units sold
Benefit of Switching = (\$960 - \$765) * (1,100 – 1,020)
Benefit of Switching = \$15,600

NPV of decision = -\$1,040,400 + (\$15,600 / 0.0082)
NPV of decision = -\$1,040,400 + \$1,902,439.02
NPV of decision = \$862,039.02

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