Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $110, and the cost per carton is $70. The unit sales will increase from 1,060 cartons to 1,120 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.

a.	If the interest rate is 1% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Change in total monthly profit $

b.	If the interest rate is 1.5% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Change in total monthly profit $

c.

Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Change in total monthly profit $

On each nondelinquent sale Cast Iron receives revenues with a present value of $1,240 and incurs costs with a present value of $1,090. Assume there is no possibility of repeat orders and that the probability of successful collection from the customer is p = .96.

a-1.	What is the expected profit of granting credit? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected profit

$ per sale

a-2.

Should Cast Iron grant or refuse credit?

	Grant
	Refuse

b.	What is the break-even probability of collection? (Enter your answer as a percent rounded to 1 decimal place.)
	Break-even probability	%
Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes with an average payment size of $2,000. The bank?s charge for operating the lock boxes is $.40 a check. The interest rate is .011% per day.

a-1.	If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.)

Daily interest saved

$

a-2.

Is it worthwhile to adopt the system?

	Yes
	No

b.	What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Minimum reduction in time

days

Question X Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $110, and the cost per carton is $70. The unit sales will increase from 1,060 cartons to 1,120 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered. a. If the interest rate is 1% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Change in total monthly profit $ b. If the interest rate is 1.5% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Change in total monthly profit $ c. Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Change in total monthly profit $ Question Y On each nondelinquent sale Cast Iron receives revenues with a present value of $1,240 and incurs costs with a present value of $1,090. Assume there is no possibility of repeat orders and that the probability of successful collection from the customer is p = . 96. a-1. What is the expected profit of granting credit? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected profit a-2. Should Cast Iron grant or refuse credit? Grant $ per sale Refuse b. What is the break-even probability of collection? (Enter your answer as a percent rounded to 1 decimal place.) % Break-even probability Question Z Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 300 payments a day will be made to lock boxes with an average payment size of $2,000. The bank's charge for operating the lock boxes is $.40 a check. The interest rate is .011% per day. a-1. If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system. (Do not round intermediate calculations.) Daily interest saved $ a-2. Is it worthwhile to adopt the system? Yes No b. What minimum reduction in the time to collect and process each check is needed to justify use of the lockbox system? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Minimum reduction in time days