1. The firm offers a Net 30 customer cash discount of 2/10. Suppose the customer order is for $1000, and the firm can invest the funds received from the customer on a short-term investment, what is the minimum effective annual rate the investment has to offer for the cash discount to be worthwhile to the firm?

2. Your company is evaluating a switch from a cash only policy to a net 30 policy. The price per unit product is $49, and the variable cost per unit is $20. The company currently sells 100 units per month. Under the proposed policy, the company expects to sell 110 units per month. The companys cost of capital for this line of business is 2% monthly. Assume that the possibility of nonpayment is small enough to ignore. What is the NPV of switching to a net 30 policy? Should the company switch?

3. Consider the same situation from the previous question, if the projected increase of sales from 100 units to 110 units is only an estimate, what increase in unit sales is necessary for the company to break even when switching to a net 30 policy?