question 17

analyst notes that the COGS will be paid immediately. Further, it is assumed that the customer will repay the trade credit obligation in 90 days. It is also assumed that the collection costs will be incurred in 90 days. If the appropriate discount rate is 10%, what is the NPV of extending credit to the new customer? 17. East Stores has derived the following consumer credit scoring model: Y=0.2*Employment +0.4* Homeowner + 0.3*Cards Employment=1 if employed full time, 0.5 if employed part-time, and 0 if unemployed; Homeowner=1 if homeowner, otherwise Cards=1 if presently has 1-5 credit cards, 0 otherwise many orders should be placed and -level should The store determines that a score of at least 0.7 indicates a very good credit risk, and it will extend credit to the individuals. If Janice is employed half time, is a homeowner, and has 2 credit cards at present, does the model indicate she should receive credit? 18. Emily Cheney is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $40,000 per day in new sales. On average, they will pay in 68 days. The variable cost ratio is 80%, collection expenses are 2% of sales, and the cost of capital is 10%. What is the NPV of one day's sales if Emily grants credit? Assume that there is no bad debt loss. Use the following information for questions 19-21. Your firm's CFO has tasked you with evaluating the net present value associated with changing the firm's trade credit terms from net 30 days to net 45 days.Other pertinent assumptions include: Annual sales with existing credit terms = $5,000,000 Variable cnet wati