Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Your firm's average daily transaction consists of a sales order for $75,000. COGS is generally equal to 60% of the sale. Assume that your firm's
Your firm's average daily transaction consists of a sales order for $75,000. COGS is generally equal to 60% of the sale. Assume that your firm's DPO is 15 days and that the operating cycle is 80 days. Further, the discount rate used for valuing working capital decisions is 9%.
a. Calculate the NPV of the typical sales transaction.
b. Recalculate the NPV, assuming an increase in DPO to 30 days.
c. Estimate the all-in effect of the increase in DPO using a daily perpetuity approach.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started