ABC Company has the following financial information for 2018:

Total current assets: $2,200,000

Total current liabilities: $1,200,000

Cash: $300,000

Inventory: $1,000,000

Accounts Receivable: $800,000

Accounts Payable: $500,000

Net sales is $10,000,000

Variable cost (VCR) is 30% of sales

Cost of Goods Sold (COGS) at 40% of sales

Average daily cash flow $27,000

Standard deviation of cash flow is $40,000

Its ROE is 25%

Total earnings of $500,000, dividend payout of $150,000.

Its cost of capital is 7%

Line of credit available: $500,000

Its credit terms from supplier is Net 35 (DPO)

Its credit terms to customer is Net 45 (DSO)

Expenses for credit administration and collection is 5% of sales EXP(.05/CP)

Daily interest rate (i) is 7%/365

Collection period for sale is 45 days (CP) It makes the following forecast for 2019:

Revenues increase by 10% from 2018 level;

Receivables will be 8% of revenues;

Inventory will equal to 10% of revenues;

Payables are expected at 5% of revenues.

4> NPV of sales calculations:

A) Calculate the variable cost (VCR) of 2018 sales

b) Calculate the present value of 2018 sales using the 45 days credit term

c) Calculate the NPV of the this sales

6. Calculate and explain the Lambda based on the information.