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What is the net present value of granting credit

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Question 1: United Floral, Inc. (UF) is selling $15,000 worth of gardening equipment to a landscaping company. UF will invest $12,500 in the sale. UF has credit terms of 3/10, net 40, and estimates that the company has a 40% probability of taking the discount and paying on day 10, a 25% probability of paying the net amount on day 60, a 31% probability of paying the net amount on day 120, and a 4% chance of never paying anything. If the opportunity cost of funds is 14% APY, what is the net present value of granting credit? Assume a 365-day year.

Reference no: EM132563467

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