Assume all sales are one-time credit sales with a probability of collection of 96 percent. The...
Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1+x percent. What is the NPV of a credit sale of one extra unit? Let x=1
A) $3.073
B) $3.026
C) $2.981
D) $2.936
E) $2.892
Homework Answers
Answer:- Option (B): $3.026
Explanation:-
Net Present Value = { (Probability of collection) x [ Sales price per unit / ( 1+ Discount rate)] } - Variable cost per unit
= [(1-.04) x ($4.99/1.02)] - $1.67
= [(0.96) x ($4.99/1.02)] - $1.67
= $4.696470588 - $1.67
= $3.026470588
OR
= $3.026
[ Note: Discount Rate = monthly interest rate of (1+x) percent = (1+1)% = 2% ]
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