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 | ||||||||
Get Answers For Free
Most questions answered within 1 hours.