Your firms CFO has tasked you with evaluating the net present value associated with changing the firms trade credit terms from net 30 days to 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

Discount rate = 10%

use this formulas :

ZN =

[(1+g)SE](1-dN)PN(1-bN) / (1 + iDPN)

+ [(1+g)SE](1-PN)(1-bN) / (1 + iCPN)

- VCR [(1+g)SE]

- EXPN[(1+g)SE] / (1 + iCPN)

ZE= SE(1-DE)PE(1-BE)/(1+ICB) + SE(1-PE)(1-BE)/1+ICPE - VCR(SE) - EXPESE/1+ICPE

1. What is the daily net present value of the current trade credit policy? Assume that the variable costs are paid upfront while the costs of collections occur when the payment is received from the customer.

2. What is the daily net present value of the new trade credit policy? Assume that the variable costs are paid upfront while the costs of collections occur when the payment is received from the customer.

3. What is the aggregate increase in net present value from making this change to trade credit policy?

4. What is the optimal cash discount percentage with the following financial situation: Cash discount period=10 days, credit period=30 days, and annual cost of capital=22%.