XYZ Inc just received a 75,000 order from a new customer, Smith Inc. The customer wants to receive the normal 30 day credit term that XYZ Inc offers its repeat customers. XYZ's variable cost and expense ratios are 50% and 2%, respectively. XYZ has a 10% cost of capital.

PART 1: What is the NPV of the order if Smith Inc pays in exactly 30 days?

Now assume that XYZ Inc isn't exactly sure of when Smith Inc will pay the invoice. Specifically, XYZ Inc assumes that Smith will pay at the end of one of the following three collection periods. The collection periods, DSOs and probabilities are shown below:

CP DSO Probability

1 30 .10

2 90 .30

3 270 .60

Assume that the 2% credit administration cost is incurred in each of the three collection periods (in other words, if Smith pays in 90 days, XYZ Inc will incur a 2% credit admin, for each of the first two periods). Accounts that fall into CP 3 are turned over to a collections agency. The collection agency typically collects 50% of the amount invoiced and charges a fee of 40% of the invoiced amount.

PART 2: Find the total EXP for period 3.

PART 3: Find the NPV of the credit extension if Smith pays in period 2. Answer should be rounded to two decimal places.