CHALLENGE QUESTION: Suppose that a company currently manufactures widgets and requires immedlate cash payment upfront for ali sales. They also pay immediately foc all $\backslash ($ B $000\backslash ).$ produced Suppose the following: Current Price per unit $\backslash (($P$)=\backslash$$ $9\backslash )$ Current average monthly sales quantity $\backslash (($Q$)=8,000\backslash )$ Variable cost per unit $\backslash (($v$)=\backslash$$ $3\backslash )$ Fixed costs $=$ so per month In order to solve this problem, you will need to model the cash flows in each month. For simplicity. assume that ALl cash flows lboth positive and negativel occurt on the same day each month. Also, assume that today is time $0.$ next month is time $1.$ the following month is time $2$ etci. Assume thar cash flows wilhappen each period forever: ANNUAL required rate of return $\backslash (=15\backslash \%\backslash )1)$ What is the present value of all cash flows, includiog those occuming todas? Present Value $\backslash (=\backslash$$ $\backslash )($Round to the nearest dollar, with No decimal! Do NoT use commast$)$ The company is considering a change to its credit policy whereby it wit require paymient within $30$ days of the sale $($Net $30$ inistead of cash upfront. Assume that all customers will pay on the due date, it is believed that. under the new policy, price will increase by so:sovunit and averdabe monchy sodes wifincrease to $10,500.$ There is no anticipated change to varlable unit costs. ii$)$ What is the net present value $($NPV$)$ of this proposed policy change if the compony were to make the chorse immediately $($le: today, in period on$?[$HIINT: an careful! I am not asking for the present value of the new cash flows. I am asking for the NPV of the CHANGE in cash flows' Extra Hint: The company still has to pay immediately for all goods sold, but they won't receive cash from their customer until the due date$)\backslash ($ N P V$=1\backslash )($Round to the nearest dollar, with NO decimat: Do NOT use commas'$)$Click to see additional instructions

CHALLENGE QUESTION:

Suppose that a company currently manufactures widgets and requires immediate cash payment upfront for all sales. They also pay immediately for all goods produced.

Suppose the following:

Current Price per unit $(P)=$$$9$

Current average monthly sales quantity $(Q)=9,000$

Variable cost per unit $(v)=$$$4$

Fixed costs $=$$$0$ per month

In order to solve this problem, you will need to model the cash flows in each month. For simplicity, assume that ALL cash flows $($both positive and negative$)$ occur on the

same day each month. Also, assume that today is time $0,$ next month is time $1,$ the following month is time $2,$ etc.$).$ Assume that cash flows will happen each period

forever.

ANNUAL required rate of return $=9\%$

i$)$ What is the present value of all cash flows, including those occurring today?

Present Value $=$$

$($Round to the nearest dollar, with NO decimal! Do NOT use commas!$)$

The company is considering a change to its credit policy whereby it will require payment within $30$ days of the sale $($Net $30)$ instead of cash upfront. Assume that all

customers will pay on the due date. It is believed that, under the new policy, price will increase by $$\frac{0\mathrm{.}50}{?}$ unit and average monthly sales will increase to $9,400.$ There is no

anticipated change to variable unit costs.

ii$)$ What is the net present value $($NPV$)$ of this proposed policy change if the company were to make the change immediately $($ie$.$ today, in period $0)?($HINT: Be careful! I am

not asking for the present value of the new cash flows, I am asking for the NPV of the CHANGE in cash flows! Extra Hint: The company still has to pay

immediately for all goods sold, but they won't receive cash from their customer until the due date$)$

$NPV=$$

$($Round to the nearest dollar, with NO decimal! Do NOT use commas!$)$