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Until recently, Augean Cleaning Products sold its products on terms of net 65 , with an average collection period of 80 days. In an attempt
Until recently, Augean Cleaning Products sold its products on terms of net 65 , with an average collection period of 80 days. In an attempt to induce customers to pay more promptly, it has changed its terms to 3/10, EOM, net 65 . Assume current sales of $100, costs of $85, an interest rate of 12%, and no defaults. Assume each month has 30 days and a year has 360 days. The initial effect of the changed terms is as follows: a Some customers deduct the cash discount even though they pay after the specified date. a. Calculate the NPV per $100 of sales based on the original terms. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Assume that sales volume is unchanged and there are no defaults. Calculate the NPV per $100 of sales based on the revised terms. (Assume all sales occur in the middle of the month. Do not round intermediate calculations. Round your answer to 2 decimal places.)
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