Question

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. |

NPV | $ |

Answer #1

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 |
||||||||

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.)

Devour, 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 1.2 percent per month.
Current Policy
New Policy
Price per unit
$700
$700
Cost per unit
$455
$455
Unit sales per month
980
1,050
Required :
Based on the above information, determine the NPV of the new
policy.
rev: 09_21_2012
$1,171,916.67
$1,372,000.00
$711,316.67
$739,769.33
$3,365,483.33

The Snedecker Corporation is considering a change in its
cash-only policy. The new terms would be net one period. The
required return is 2 percent per period.
Current Policy
New Policy
Price per unit
$
84
$
86
Cost per unit
$
44
$
44
Unit sales per month
4,100
?
What is the break-even quantity for the new credit policy?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)

The Snedecker Corporation is considering a change in its
cash-only policy. The new terms would be net one period. The
required return is 2 percent per period.
Current Policy
New Policy
Price per unit
$
68
$
70
Cost per unit
$
36
$
36
Unit sales per
month
2,900
?
What is the break-even quantity
for the new credit policy? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g.,
32.16.)
Break-even
quantity...

The Snedecker Corporation is considering a change in its
cash-only policy. The new terms would be net one period. The
required return is 2 percent per period. Based on the following
information, what is the break-even price per unit that should be
charged under the new credit policy? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Current Policy
New Policy
Price per unit
$
56
?
Cost per unit
$
32
$...

The Snedecker Corporation is considering a change in its
cash-only policy. The new terms would be net one period. The
required return is 2 percent per period. Based on the following
information, what is the break-even price per unit that should be
charged under the new credit policy? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Current Policy
New Policy
Price per unit
$
56
?
Cost per unit
$
32
$...

XYZ, Inc., is considering a change in its cash-only
sales policy. The new terms of sale
would be net one month.
Based on the following information, determine if the
company should proceed or not.
Describe the buildup of receivables in this case. The
required return is .95 percent
per month.
Current Policy
New Policy
Price per unit
$ 630
$ 630
Cost per unit
$ 495
$ 495
Unit sales per month
1,240
1,310

Codiac Corp. currently has an all-cash credit policy. It is
considering making a change in the credit policy by going to terms
of net 30 days. The required return is 0.79% per month.
Current Policy
New Policy
Price per unit
$
190
$
194
Cost per unit
$
146
$
150
Unit sales per month
1,410
1,450
Calculate the NPV of the decision to change credit policies.
(Negative answer should be indicated by a minus sign. Do
not round intermediate...

Codiac Corp. currently has an all-cash credit policy. It is
considering making a change in the credit policy by going to terms
of net 30 days. The required return is 0.87% per month.
Current Policy
New Policy
Price per unit
$
230
$
235
Cost per unit
$
170
$
175
Unit sales per month
1,650
1,700
Calculate the NPV of the decision to change credit policies.

Sanchez, inc., is considering a change in its cash-only sales
policy. the new terms of trade would be net one month. Based on the
following information, determine if the company should proceed or
not. Describe the buildup of receivables in this case. The required
return is .95 percent per month.
Current Policy New Policy
Price per
unit
$540
$540
Cost per
unit
$395
$395
Unit sales per
month 1080
1130

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