Question

# Problem 28-10 Credit Policy Evaluation Leeloo, Inc., is considering a change in its cash-only sales policy....

Problem 28-10 Credit Policy Evaluation

 Leeloo, 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 .62 percent per month.

 Current Policy New Policy Price per unit \$ 760 \$ 760 Cost per unit \$ 555 \$ 555 Unit sales per month 820 870

 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.)

 NPV \$

 Cost of switching = lost sale from existing policy + incremental variable cost under new policy =820*760+(870-820)*555 650950.00 Benefit of switching = (new sale - variable cost per unit)* incremental unit sold =(760-555)*(870-820) 10250 we have monthly interest rate = 0.62% using the the formula of present value of prepetuity we have = present value of benefit of switching = 10250/0.62% 1653225.81 Therefore net present value of switching = 1653225.81-650950 1002275.81 Answer = 1002275.81

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