Reference no: EM132539668

Question 1: Tile Emporium manufactures tiles and stone pavers. It currently operates as a cash business, with mainly retail customers, but by offering credit it will grow sales to wholesale customers. It is estimated that by offering 30 days' credit, monthly sales will increase by $50,000 while upfront monthly costs will increase by $20,000. Unfortunately, some customers will pay late, while other will not pay at all. Tile emporium estimates that only 50% of its sales will be settled on time if it offers credit, while another 45% will be settled 30 days late. The remaining 5% of sales will result in non-payment. What is the NPV of the decision to offer credit, if the required rate of return is 2% per month?

Option 1: $26,569

Option 2: $26,136

Option 3: $25,656

Option 4: None of the other answers is correct

Option 5: $29,020