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Please help by explaining step by step, #13 a-c. Thanks! One-time transaction for a sale of $250,000 COGS associated with the sale $100,000 Operating Cycle
Please help by explaining step by step, #13 a-c. Thanks!
One-time transaction for a sale of $250,000 COGS associated with the sale $100,000 Operating Cycle = 60 days DPO =15 days Discount Rate = 8% What is the NPV associated with the transaction? Your firm just received an order from a customer for $50,000 of widgets. You have been tasked with evaluating the effect of time value of money on your firms cash flows (on a transaction by transaction basis). To fulfill this order your firm will need to produce and transport the widgets. This will take 50 days. Assume that the widgets will cost $30,000 in COGS; your firm is given 20 days to pay for the raw materials. Once the widgets are delivered to your customer, 40 days of trade credit will be provided to the customer. Assume a discount rate of 7%. With the aforementioned assumptions, what is the NPV of this transaction? Recalculate the NPV, assuming that your firm reduced the time needed to produce and transport the widgets to 35 days. Next, treat the difference in NPV (NPV from part b minus NPV from part a) as a daily perpetuity and determine the total increase in firm value attributable to the improvement in inventory management. Your firms average daily transaction consists of a sales order for $75,000. COGS is generally equal to 60% of the sale. Assume that your firms is 15 days and that the operating cycle is 80 days. Further, the discount rate used for valuing working capital decisions is 9%Step by Step Solution
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