Question
A firm currently produces and sells 2,500 units every 60 days. One unit costs $150 to produce and sells for $500. The firm currently offers
A firm currently produces and sells 2,500 units every 60 days. One unit costs $150 to produce and sells for $500. The firm currently offers all it's customers a "net 30" credit period and all customers pay on Day 60. In order to boost sales, the firm is considering Project D, which will simply add a window an offering a 10% discount for customers who pay immediately. Research suggests sales will increase sales to 2,600 units and approximately one quarter of all customers will pay on Day 0 and 75% will pay on Day 30. If the annualized cost of capital is 6%, what is the NPV of Project D? The firm will continue to run to perpetuity. (Assume production and sales occur on Day 0 and repeat every 30 days).
a.$4.04 million
b.$3.75 million
c.$3.35 million
d.$2.25 million
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started