Question
A seller is considering extending trade credit to an existing customer that buys on cash terms. The customer has just placed a sales order (cash
A seller is considering extending trade credit to an existing customer that buys on cash terms. The customer has just placed a sales order (cash terms) for immediate delivery of 400 units at a sales price per unit of $100. The customer states that they will increase their sales order by 10 units if they receive a 90-day credit period. Variable costs are $65 per unit and involve an immediate cash outflow. The seller has an annual opportunity cost rate of 7.3%. At what sales quantity will the seller break-even (from an NPV perspective) by extending credit to the customer?
Select one:
a. 21 units
b. 400 units
c. 421 units
d. 450
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