Your Current Sales Consist of 40 Units Per Month at a Price

question 214

Multiple Choice

Your current sales consist of 40 units per month at a price of $125 a unit. You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy. If you decide to switch your credit policy you also plan to increase the sales price to $139 a unit. If you make the switch you do not expect your total monthly sales to change but you do expect a 1 percent default rate. The monthly interest rate is 1.5 percent. What is the net present value of the proposed credit policy switch?

• A) $26,845
• B) $27,002
• C) $28,778
• D) $28,619
• E) $28,909

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Definitions:

Perpetual Inventory System

An inventory management system where updates are made continuously as transactions occur, maintaining real-time inventory levels.

Journal Entries

The recordation of financial transactions in an accounting system.

After-tax Earnings

The net income a company generates after all taxes have been deducted from gross earnings.

Physical Reductions

Decreases in the quantity or physical state of assets, often associated with inventory or fixed assets through use, wear, and tear.