Fundamentals of Corporate Finance
Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 20.A, Problem 1QP

Evaluating Credit Policy [LO2] Bismark Co. is in the process of considering a change in its terms of sale. The current policy is cash only; the new policy will involve one period’s credit. Sales are 25,000 units per period at a price of $350 per unit. If credit is offered, the new price will be $368. Unit sales are not expected to change, and all customers are expected to take the credit. Bismark estimates that 3 percent of credit sales will be uncollectible. If the required return is 2.5 percent per period, is the change a good idea?

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35 Rapterz Renewal Inc.. is considering a change in its cash-only sales policy. The new terms of sale would be net 30 days. You have been provided with the following: Current Credit Policy Sales price per unit Variable cost per unit Unit sales per month Required monthly return Calculate the NPV of Switching. Show all calculations. $165 132 1,260 1.5% Proposed Credit Policy $168 132 Should the company switch policies? Explain your answer. 1,290 1.5%
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Fundamentals of Corporate Finance

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