A Firm Currently Sells Its Product with a 2% Discount

question 74

Multiple Choice

A firm currently sells its product with a 2% discount to customers who pay by cash or credit card when they purchase one of the firm's products;otherwise,the full price is due within 30 days.Forty percent of customers take advantage of the discount.The firm plans to drop the discount so the new terms will simply be net 30.In doing so it expects to sell 100 fewer units per month and all customers to pay at day 30.The firm currently sells 1000 units per month at a cost per unit of $45 and a selling price per unit of $80.If the firm's required return is 2%,what is the net present value (NPV) of making this change?

• A)-$169,860
• B)-$122,420
• C)$64,490
• D)$172,320

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Definitions:

MPC

The marginal propensity to consume, which is the fraction of additional income that a household spends on consumption.

Disposable Income

Financially viable resources for households' spending and saving strategies after deducting income taxes.

Consumption

The action of using up a resource or the purchase of goods and services by households.

APS

A generic term potentially referring to various organizations or concepts; without specific context, a precise definition cannot be provided. If referring to economic terms, it might be erroneous or too vague without further context.