Question
Use the following information to answer Questions 11 - 13 Your firm's CFO has tasked you with evaluating the net present value associated with changing
Use the following information to answer Questions 11 - 13
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 2/20, net 60 days. Other pertinent assumptions include:
| Variables | Current Terms | Proposed Terms |
| Terms (all sales are credit sales) | Net 30 | 2/20, Net 60 |
| Annual Credit Sales | $2,000,000 | $2,400,000 |
| Variable Cost Ratio | 50% | 50% |
| Collection Expense Ratio | 1% | 2% |
| Bad Debt Expense Ratio | 2% | 4% |
| Days Sales Outstanding Non-discount Takers | 35 | 65 |
| Customers Taking Discount | 0 | 40% |
| Annual Cost of Capital | 9% | 9% |
11. What is the daily net present value of the current trade credit policy?
| a. | $7,574.67 | |
| b. | $2,529.87 | |
| c. | $8,766.98 | |
| d. | $1,262.43 |
12. What is the daily net present value of the new trade credit policy?
| a. | $8,097.93 | |
| b. | $1,432.51 | |
| c. | $2,772.84 | |
| d. | $7,436.67 |
13. What is the 1-day change in value related to the new trade credit policy?
| a. | $523.26 | |
| b. | $242.97 | |
| c. | $696.20 | |
| d. | $378.94 |
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Cases In Healthcare Finance
Authors: Louis Gapenski
5th Edition
1567936113, 978-1567936117
