6.1. Carbondale Company has the following credit policy 2/10, net 30. Carbondale also charges 1% per...

Transcribed Image Text:

6.1. Carbondale Company has the following credit policy 2/10, net 30. Carbondale also charges 1% per month interest on all accounts after 30 days. The following table shows the collection schedule of all sales: Collection within 10 days 30 days 60 days 90 days Percentage 10% 30% 40% 20% To improve the collection rate, Carbondale is thinking of imposing a higher interest rate, 1.5% per month, on all accounts paid after 30 days. Carbondale believes that the new policy will change the collection schedule as follows: Collection within 10 days 30 days Percentage 10% 50% 60 days 90 days 30% 10% There will be no change in the total sales as a result of this new policy. The cost of capital for Carbondale is 12%. Should it try the new policy? NPV(old) = .9899, NPV(new) = .9921, yes. 6.1. Carbondale Company has the following credit policy 2/10, net 30. Carbondale also charges 1% per month interest on all accounts after 30 days. The following table shows the collection schedule of all sales: Collection within 10 days 30 days 60 days 90 days Percentage 10% 30% 40% 20% To improve the collection rate, Carbondale is thinking of imposing a higher interest rate, 1.5% per month, on all accounts paid after 30 days. Carbondale believes that the new policy will change the collection schedule as follows: Collection within 10 days 30 days Percentage 10% 50% 60 days 90 days 30% 10% There will be no change in the total sales as a result of this new policy. The cost of capital for Carbondale is 12%. Should it try the new policy? NPV(old) = .9899, NPV(new) = .9921, yes.