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

question 199

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

---

Definitions:

Selling Expenses

Selling expenses are costs associated with the marketing and sale of products or services, including advertising, sales commissions, and the employment of sales personnel.

Excludes Gain

A term referring to certain types of profit that are not subject to tax under specific circumstances.

Personal Residence

A property where an individual lives for most of the time and considers it their primary place of residence.

Recognized Gain

The portion of profit or loss from the sale of an asset that must be reported on a taxpayer's income tax.