calculate NPV for the proposed terms
The financial manager for "LRR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. "LRR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholders wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information: Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital = 10% Inventory turnover = 18.25 Exercise 3(10 points) The financial manager for "LRR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. 'LRR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholders wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information: Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital -10% Inventory turnover =18.25 1- Calculate the daily NPV of the current terms. (2 points) 2- Calculate the daily NPV of the proposed terms. (2 points) 3- Based on your own calculations, what is you recommendation? Why? (2 points) 4- Calculate the NPVccp of the present terms. Interpret. (2 points) 5- Calculate the ANPVCCP-aggregate of the Company. Interpret. (2 points) The financial manager for "LRR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. "LRR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholders wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information: Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital = 10% Inventory turnover = 18.25 Exercise 3(10 points) The financial manager for "LRR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. 'LRR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholders wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information: Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital -10% Inventory turnover =18.25 1- Calculate the daily NPV of the current terms. (2 points) 2- Calculate the daily NPV of the proposed terms. (2 points) 3- Based on your own calculations, what is you recommendation? Why? (2 points) 4- Calculate the NPVccp of the present terms. Interpret. (2 points) 5- Calculate the ANPVCCP-aggregate of the Company. Interpret. (2 points)
