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.
Answer to relevant QuestionsCritics have charged that compensation to top managers in the United States is simply too high and should be cut back. For example, focusing on large corporations, David Novak of fast food operator Yum! Brands has been one ...Suppose the firm in Problem 3 had 110,000 shares of common stock outstanding. What is the earnings per share, or EPS, figure? What is the dividends per share figure?The 2010 balance sheet of Maria’s Tennis Shop, Inc., showed $680,000 in the common stock account and $4.3 million in the additional paid-in surplus account. The 2011 balance sheet showed $715,000 and $4.7 million in the ...In Problem 19, suppose Raines Umbrella Corp. paid out $63,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued during the year, what do you ...Diamond Eyes, Inc., has sales of $18 million, total assets of $15.6 million, and total debt of $6.3 million. If the profit margin is 8 percent, what is net income? What is ROA? What is ROE?
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