Use the following information to answer Questions 11 - 16.

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 1/10, net 45 days. Other pertinent assumptions include:

Annual sales with existing credit terms = $5,000,000

Variable cost ratio with existing credit terms = 30% of revenues

Costs of collections with existing credit terms = 1% of revenues

Bad debt expense ratio with existing credit terms = 2% of revenues

Annual sales with new credit terms = $5,500,000

Variable cost ratio with new credit terms = 30% of revenues

Costs of collections with new credit terms = 1% of revenues

Bad debt expense ratio with new credit terms = 3% of revenues

Proportion of sales taking discount = 40%

Annual cost of capital = 10%

What is the daily net present value of the current trade credit policy?

	a.	$212,347.33
	b.	$17,560.68
	c.	$17,288.94
	d.	$9,069.76

3 points

QUESTION 12

What is the daily net present value of the new trade credit policy?

	a.	$18,807.05
	b.	$19,104.75
	c.	$9,765.96
	d.	$213,326.27

3 points

QUESTION 13

What is the 1-day change in value related to the new trade credit policy?

	a.	$1,518.12
	b.	$696.20
	c.	$978.94
	d.	$1,544.08

3 points

QUESTION 14

What is the change in daily net present value related to the new trade credit policy?

	a.	$5,541,118.23
	b.	$2,541,118.11
	c.	$5,635,873.80
	d.	$3,573,137.41

3 points

QUESTION 15

Do you recommend that the CFO initiates the new trade credit policy?

	a.	Yes.
	b.	Indifferent.
	c.	No.
	d.	Unable to decide.

3 points

QUESTION 16

What is the optimal cash discount percent?

	a.	0.5683%
	b.	0.4092%
	c.	0.4771%
	d.	0.5264%