Q2

Assume that the Financial manager of a firm calculated three NPVs' mentioned below based on different sales forecast. Moreover, he believes there is a 25% chance of worst acceptance to occur, a 25% chance of excellent performance to occur, and a 50% chance of average acceptance to occur. Use the worst-, base-, and best-case NPVs and probabilities of occurrence to find the project's expected NPV, as well as the NPV's standard deviation and coefficient of variation.

Base

Worst

Best

NPV

$2,200,243 BASE

-$1,213,189 WORST

$6,973,498BEST

Q3

Suppose a firm makes purchases of Rs 10.95 million per year under terms of 2/10, net 30, and takes discounts.

i.What is the average amount of accounts payable net of discounts? (Assume the Rs 10.95 million of purchases is net of discountsthat is, gross purchases are Rs 11,173,469.40, discounts are Rs 223,469.40, and net purchases are Rs 10.95 million.)

ii.Is there a cost of the trade credit the firm uses?

iii.If the firm did not take discounts but did pay on the due date, what would be its average payables and the cost of this nonfree trade credit?

iv.What would be the firm's cost of not taking discounts if it could stretch its payments to 40 days?