Question: Suppose a corporation currently sells Q units per month for
Suppose a corporation currently sells Q units per month for a cash-only price of P . Under a new credit policy that allows one month’s credit, the quantity sold will be Q 9 and the price per unit will be P 9. Defaults will be p percent of credit sales. The variable cost is n per unit and is not expected to change. The percentage of customers who will take the credit is a, and the required return is R per month. What is the NPV of the decision to switch? Interpret the various parts of your answer.
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