Question

Please explain step by step these problem below:

1. George Gonzalez is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $45,000 per day in new sales. On average, they will pay in 75 days. The variable cost ratio is 75%, collection expenses are 5% of sales, and the cost of capital is 11%. What is the NPV of one day's sales if Jesse grants credit? Assume that there is no bad debt loss.

2. You are trying to decide whether to pay the invoice now or to wait and pay at the end of the discount period. The trade credit terms are 2/15, net 45. Assume that the invoice is $12,000 with an opportunity cost of 11% What would be the savings if you paid the invoice until the end of the discount period?

Answer 1