Question
A credit analyst has received a $20,000 order from a new customer. The cost of filling the order (i.e., COGS) is $18,100 and collection costs
A credit analyst has received a $20,000 order from a new customer. The cost of filling the order (i.e., COGS) is $18,100 and collection costs are $500. The credit analyst notes that the COGS will be paid immediately. Further, it is assumed that the customer will repay the trade credit obligation in 90 days. It is also assumed that the collection costs will be incurred in 90 days. The appropriate discount rate is 9%.
What is the net present value of extending credit to the new customer?
What is the minimum sales price on this order that would allow the credit analyst to consider extending the credit?
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