3) Renegotiating Credit Terms - You want to renegotiate longer credit terms with one of your suppliers from net 30 to net 45. Lengthening DPO would shorten the cash conversion cycle (CCC). Your firm purchases $1.2 million in inventory from this supplier every four months your annual opportunity cost of funds (1) is 8%. and A. Calculate the value of the savings from one purchase made under the new terms? Note: Discount the $1.2M purchase (this is the CF) for 30 days, then separately discount the same amount for 45 days, then calculate the difference. OC boog B. If the change is considered permanent, what is the NPV of the new terms? Note: Remember the firm buys every four months, so the result of the calculation is a benefit realized every four months (three times a year). If the renegotiation becomes permanent and the firm intends to continue purchasing from this supplier in the same amount on the same frequency, it benefits from the perpetuity in 4-month streams and we need an appropriate periodic interest rate => (i/3) C. If the change is expected to last only, say, three-years, what is the NPV of the new terms. Note: Calculate the PVA using your financial calculator