Your Firm Currently Sells 320 Units a Month at a Price

question 286

Multiple Choice

Your firm currently sells 320 units a month at a price of $175 a unit. You think you can increase your sales by an additional 125 units if you switch to a net 30 credit policy. The monthly interest rate is.5 percent and your variable cost per unit is $94. What is the net present value of the proposed credit policy switch?

• A) $1,506,500
• B) $1,625,750
• C) $1,875,000
• D) $1,957,250
• E) $2,092,750

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Definitions:

Expired Warrants

Warrants that have reached their expiration date and are no longer valid or exercisable to buy the underlying security at a predetermined price.

Additional Paid-In Capital

The amount of money paid by investors to a company above the par value of the shares during common or preferred stock issuance.

Common Stock Warrants

Common stock warrants are financial instruments that give the holder the right to purchase the issuer's common stock at a specified price before the warrant expires.

Callable

A financial instrument or security that gives the issuer the right to redeem or "call" it back before its maturity date under specified conditions.