What the maximum credit period

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Reference no: EM132995807

Problem - Company ABC currently has a discount policy of (2/10, net 30) with the following information:

Credit sales (units) 100,000

Price ($/unit) 100

Variable cost ($/unit) 60

Percentage taking discount 40

Corporate tax rate (%) 40

Cost of capital (%) 14

There is no delinquency with the existing policy!

Required -

1. What the NPV of the existing discount policy?

a. $ 1.80 MM

b. $ 2.00 MM

c. $ 2.10 MM

d. $ 2.20 MM

e. $ 2.30 MM

2. What the maximum credit period that would result in the completed elimination of the existing discount policy?

a. 37 days

b. 45 days

c. 48 days

d. 52 days

e. 56 days

Reference no: EM132995807

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