Present value basis if credit is offered to all customers

Assignment Help Financial Management

Reference no: EM13874632

Microbiotics currently sells all of its frozen dinner’s cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $60, and the cost per carton is $45. The unit sales will increase from 1,160 cartons to 1,220 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.

a. If the interest rate is 1% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round to 2 decimal places).

b. If the interest rate is 1.5% , what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round to 2 decimal places.)

c. Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Reference no: EM13874632

Questions Cloud

Evaluating proposed expansion-incremental free cash flow : Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently, it plans to add two additional tank cars to its fleet four years from now. When evaluating the proposed expansion, what incremental free cash flows sh..

Approach to prevention and control of the disease : In 2-3 paragraphs, summarize the historical approach to prevention and control of the disease. In 2-3 paragraphs, summarize the current approach to prevention and control of the disease

What is its current share price : Solinux, Inc., is a young start-up company and will not pay dividends on its stock for the next 8 years, since the firm needs to slow back its earnings to fuel growth. The company will then pay a $2.22 per share dividend in year 9 and will increase t..

Determine the present value of the lease percent : Air Atlantic has been offered a 3 year-old jet airlines under a 12-year arrangement. The lease requires AA to make annual lease payments of $500,000 beginning of each of the next 12 years. Determine the present value of the lease percent.

Present value basis if credit is offered to all customers : Microbiotics currently sells all of its frozen dinner’s cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $60, and the cost per carton is $45. If the interest rate is 1% per m..

Should the investment be undertaken : An investment requires an outlay of $100,000 today. Cash inflows from the investment are expected to be $40,000 per year at the end of years 4, 5, 6, 7, and 8. If you require a 20 percent rate of return on this type of investment, should the investme..

When project has multiple internal rates of return : If a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ________________ the required rate of return for the firm. When a p..

The disadvantages of the payback approach include : The earnings and dividends of MicroSun Computer Co. are expected to grow at an annual rate of 15% over the next 4 years and then slow to a constant growth rate of 8% per year. MicroSun currently pays a dividend of $0.50 per share. What is the value o..

Consider the expectations theory with term premium : Consider the expectations theory (of the term structure) with a term premium. What is the interest rate on a 5-year bond today if the term premium for a 5-year bond is 2% and 1-year interest rates are expected to remain constant at their current leve..

User Account

All Pages