Question

The Branding Iron Company sells its irons for $67 apiece wholesale. Production cost is $57 per iron. There is a 18% chance that wholesaler Q will go bankrupt within the next year. Q orders 1,000 irons and asks for eight months’ credit. Assume that the discount rate is 12% per year, there is no chance of a repeat order, and Q will pay either in full or not at all.

a. Calculate the NPV of the order. (A negative answer should be indicated by minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

NPV=   $

Answer 1

Answers page: 0 Given details units Sale = 1000 price per unit = 67 Total sale Value 1000.X 67: = 65000 discount rate 11•1pia monthly discount rate = 444 (12/12) Npv of the sale value PUIF 16., 8 months =0,9935 present Value - 61873,38 I using financial cost of the product = 54000 (given) NpV 1000 iron - 61873. 38 - 57000 calculator) 4873.38 4873.38 1 Npv per iron = (000 4.87 338 . Therefore, INPV = $ 4.87 |