a W Co currently has a cash sales only policy Under this policy, the firm sells 410 units a month at a price of $219 a unit The variable cost per unit is $148 and the carrying cost per unit is $3 30 The monthly interest rate is 1 3 percent The firm believes it can increase its sales to 475 units a month if it institutes a2 net 30 credit policy What is the NPV of the switch Should the company offer credit terms of net 30 Continue to requirement a If W Co offers terms of 2 9, net 41 What effective annual interest rate does the firm earn when a customer does not take the discount W Co is analyzing the possible acquisition of Firm T Both firms have no debt W believes the acquisition will increase its total aftertax annual cash flows by $340,000 indefinitely The appropriate discount rate for the incremental cash flows is 9 percent W is trying to decide whether it should offer 40,000 shares of its stock or $180 in cash for each share to T's shareholders Firm W Firm T Price earnings ratio 12 10 5 Shares outstanding 210,000 50,000 Earnings $3,200,000 $720,000 What is the value of firm T to firm W (Rounding your answers to two decimal places) Continue to requirement c Should the acquisition be attempted If so, which alternative should W use Show your calculations (Rounding your answers to two decimal places)

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a. W Co. currently has a cash sales only policy. Under this policy, the firm sells 410 units a month at a price of $219

a. W Co. currently has a cash sales only policy. Under this policy, the firm sells 410 units a month at a price of $219 a unit. The variable cost per unit is $148 and the carrying cost per unit is $3.30. The monthly interest rate is 1.3 percent.

The firm believes it can increase its sales to 475 units a month if it institutes a2

net 30 credit policy. What is the NPV of the switch? Should the company offer credit terms of net 30?

Continue to requirement a. If W Co. offers terms of 2/9, net 41. What effective annual interest rate does the firm earn when a customer does not take the discount?
W Co. is analyzing the possible acquisition of Firm T. Both firms have no debt. W believes the acquisition will increase its total aftertax annual cash flows by $340,000 indefinitely. The appropriate discount rate for the incremental cash flows is 9 percent. W is trying to decide whether it should offer 40,000 shares of its stock or $180 in cash for each share to T's shareholders.

Firm W

Firm T

Price-earnings ratio

12

10.5

Shares outstanding

210,000

50,000

Earnings

$3,200,000

$720,000

What is the value of firm T to firm W? (Rounding your answers to two decimal places)
Continue to requirement c. Should the acquisition be attempted? If so, which alternative should W use? Show your calculations (Rounding your answers to two decimal places).