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Firm ABC is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $500,000 per
Firm ABC is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $500,000 per day in new sales. On average, they will pay in 60 days. The variable cost ratio is 70 % of sales, collection expenses are 5 % of sales, and the discount rate is 15%. Assume that the variable costs occur upfront, while thecollection costs occur on the date in which the customer's payment is received. What is the NPV of one day's sales if the firm grants credit? Assume that there is no bad debt loss e a $113,570 b. 233,620 C. 222,700 None of the above
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