Sanchez, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is .9 percent per month. |
Current Policy | New Policy | |||||
Price per unit | $ | 1,040 | $ | 1,040 | ||
Cost per unit | $ | 850 | $ | 850 | ||
Unit sales per month | 1,100 | 1,200 | ||||
Calculate the NPV of the decision to switch. |
Calculation of cost of switching to new policy | ||||||
Cost of switching | (1040*1100)+850*(1200-1100) | |||||
Cost of switching | 1144000+(850*100) | |||||
Cost of switching | $1,229,000 | |||||
Calculation of benefit of switching to new policy | ||||||
Benefit of switching | (1040-850)*(1200-1100) | |||||
Benefit of switching | $19,000 | |||||
Calculation of NPV of the decision to switch | ||||||
NPV | -1229000+(19000/0.90%) | |||||
NPV | -1229000+2111111 | |||||
NPV | $882,111 | |||||
Thus, NPV of the decision to switch is $882,111. | ||||||
Sanchez, Inc., is considering a change in its cash-only sales policy. The new terms of sale...
Sanchez, Inc., is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is 76 percent per month. Price per unit Cost per unit Unit sales per month Current Policy $ 900 $ 690 960 New Policy $ 900 $ 690 1,040 Calculate the NPV of the decision to switch. (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
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