Question
Your company currently accepts cash sales for the sale of golf shoes, but it is considering offering new credit terms of one period. Based on
Your company currently accepts cash sales for the sale of golf shoes, but it is considering offering new credit terms of one period. Based on the proposed credit policy, the price of one pair will increase from $65 to $68. You are expecting to sell 600 additional pairs per period. Under the cash only policy, your company sells 4,500 pairs per period. There will not be any change in the variable cost and will remain at $40 per pair. In addition to these changes, accounting department conducts an aging schedule analysis and expects bad debt losses to be $14,000 per period. Your company will finance additional investment in receivables by using a line of credit, which charges 5% interest for each period. Your companys tax rate is 45%. Calculate the NPV of this switch
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