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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The Berry Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5% per period. Price per unit Cost per unit Unit sales per month NPV Current Policy New Policy $ $ $ 38 3,280 Calculate the NPV of the decision to change credit policies. (Omit "$" sign In your response. Negative answer should be Indicated by a minus sign.) 38 3,398
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The Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2 percent per period. Price per unit Cost per unit Current New Policy Policy $ 86 $ 88 $46 $46 Unit sales per month 4,400 ? What is the break-even quantity for the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Break-even quantity 4,397.63x

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Fundamentals of Corporate Finance

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