Until recently, Augean Cleaning Products sold its products on terms of net 55, with an average collection period of 70 days In an attempt to induce customers to pay more promptly, it has changed its terms to 2 10, EOM, net 55 Assume current sales of $100, costs of $75, 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 Average Collection Periods (Days) Percent of Sales with Cash Discount Cash Discount Net 55 25 a 75 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 ) Net present value $ 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 ) Net present value $

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 23, 2024

Until recently, Augean Cleaning Products sold its products on terms of net 55, with an average collection period of 70 days. In an attempt to

Until recently, Augean Cleaning Products sold its products on terms of net 55, with an average collection period of 70 days. In an attempt to induce customers to pay more promptly, it has changed its terms to 2/10, EOM, net 55. Assume current sales of $100, costs of $75, 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:

	Average Collection Periods (Days)
Percent of Sales with Cash Discount	Cash Discount	Net
55	25^a	75

^aSome 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.)

Net present value= $

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.)

Net present value = $