Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please review the attached document, need assitance with section a and b. thanks Topic 7 (20 points) The VP-Sales and Marketing of Midwest Manufacturing Company
Please review the attached document, need assitance with section a and b. thanks
Topic 7 (20 points) The VP-Sales and Marketing of Midwest Manufacturing Company has asked for your analysis of her proposal to modify the company's current terms of sale, \"2/10, net/30.\" She has proposed more generous terms - \"3/10, net/30\" - in order to promote increased sales and market share. She has acknowledged that more generous terms may also lead to increased bad debts. The business' operating budget for the forthcoming fiscal year includes the following relevant information: Budgeted unit sales, Q18,000,000 units Budgeted unit selling, SP $15 per unit Budgeted bad debts, BD1, as percent of sales 0.01 (or, 1.0 percent) Budgeted unit variable cost, VC (excluding BD1) $8 per unit Combined effective income tax rate, t 0.40 (or, 40.0 percent) Current interest rate on business' debt, rD 0.12 (or, 12.0 percent) In addition, based on the existing terms of sales: Discount percentage, CD1 0.02 (or, 2.0 percent) Discount period, DP1 10days Under the proposed terms of sales: Discount percentage, CD2 0.03 (or, 3.0 percent) Discount period, DP2 10 days Estimated bad debts, BD2, as percent of sales 0.015 (or, 1.5 percent) 17F8W1 Given from above Q1 = 8,000,000 SP = $15 BD1 = 1% VC = $8 t= 40.00% rD = 12.00% CD1 = 2.00% DP1 = 10 CD2 = 3.00% DP2 = 10 BD2 = 1.5000% Complete Parts A & B days days On The Next Page a. Compute the NPV of the company's existing terms of sales based on its operating budget and other information provided, above. Show computations in good form and label properly all amounts presented. NVP = -VC * Q1 * (1-t) +[SP *Q1 * (1-CD1) *(1-BD1) * (1-t)] /[1+rD * (1t)/365]^DP1 -38400000 117600000 59.4% 67.2% b. Compute the required sales volume, Q2, under the proposed terms of sale necessary to achieve the NPV of the existing credit policy - i.e., the \"break even\" unit sales volume. Show computations in good form and label properly all amounts presented. Q2=-VC * Q2 * (1-t) +[SP * Q2 *(1-CD2) *(1-BD2)* (1-t)] /[1+rD *(1-t)/365]^DP2Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started