Part 2 (10 marks) Lory Corporation has variable costs per unit of $.35 per $1 of sales. The firm offers a 2% discount for
Part 2 (10 marks) Lory Corporation has variable costs per unit of $.35 per $1 of sales. The firm offers a 2% discount for orders paid within 15 days if the customer increases their order size by 5%. A customer normally orders $75,000, and is considering the discount. Normally, the customer pays within 30 days with no discount. Lory 's cost of debt capital is 12%. (a) Would Lory be wise to offer the discount? Calculate the NPV of the decision. (b) Determine the increase in the order size that would make Lory indifferent between offering the discount and no-discount policy.
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