KIA inc. produces and commercializes engines for cars. to stimulate sales, the financial manager is contemplating lengthening its credit period from the existing net 30 terms to net 35 terms. the credit analyst estimates that the new credit policy increases sales by 15 percent. the financial manager asks you to analyze the impacts of the proposed credit change on the firm's value.

the variable costs, as a percent of sales, equal 70%. the existing monthly credit sales is $90 million. the existing bad debt loss rate is 2% and will increase by 0.75% after lengthening the credit period. the existing credit and collection expenses equal 2.5% of sales and those under 35 day terms will be 3% of sales. the company's cost of capital is presently 10%. under the new credit policy, the firm offers a 2% cash discount if they pay within one week and the percent of sales made to cash discount-takers will be 15%.

1) calculate the NPV of one day's sales under the existing credit policy.

2) calculate the NPV of one day's sales under the new policy.