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The firm is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $92,841 per
The firm is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $92,841 per day in new sales. On average, they will pay in 30 days. The variable cost ratio (i.e., COGS) is 80% of sales, collection expenses are 5% of sales, and the discount rate is 8%. Assume that the variable costs occur upfront, while the collection costs occur on the date in which the customers payment is received. Assume that there is no bad debt loss. What is the NPV of one day's sales if the firm grants credit?
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