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Your company currently sells its product with a 2% discount to customers who pay cash immediately. Otherwise, the full price is due within 30 days.
Your company currently sells its product with a 2% discount to customers who pay cash immediately. Otherwise, the full price is due within 30 days. Mor than half of your customers, about 60% of them, take advantage of the discount. You are considering dropping the discount so that your new terms would just be net 30 . If you do that, you expect to lose some customers who were only willing to pay the discounted price, but the rest will simply switch to taking the full 30 days to pay. Altogether, you estimate that you will sell 32 fewer units per month (compared to 800 units currently). Your variable cost per unit is $70 and your price per unit is $150. If your required return is 1.2% per month, should you switch your policy? Answer: The NPV of the cashflows under the current policy is $ (round to the nearest integer). The NPV of the cashflows under the new policy is $ (round to the nearest integer). Your company (answer either "should" or "should not") switch to the new policy because the NPV of switching is \$ , which is (answer "positive," "negative," or "zero")
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