Your fiRm Currently Has a Cash Sales Only Policy

question 143

Multiple Choice

Your firm currently has a cash sales only policy. Under this policy, you sell 290 units a month at a price of $160 a unit. Your variable cost per unit is $104 and your carrying cost per unit is $2.70. The
Monthly interest rate is 1.1 percent. You think that you can increase your sales to 350 units a month if
You institute a net 30 credit policy. What is the net present value of the switch using the one-shot
Approach?

• A) $228,400
• B) $248,709
• C) $252,814
• D) $282,233
• E) $285,902

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Definitions:

Break-even Sales

The amount of revenue that must be generated to cover total fixed and variable costs, resulting in zero net income or loss.

Unit Selling Price

The price at which a single unit of a product is sold, determining the revenue generated from sales.

Variable Costs

Costs that vary directly with the level of production or business activity, such as materials and labor.

Operating Income

Earnings before interest and taxes (EBIT), representing the amount of profit realized from a business's operations.