Emily Cheney Is Evaluating a Proposal to Extend Credit to a Group

question 14

Multiple Choice

Emily Cheney is evaluating a proposal to extend credit to a group of new customers.The new customers will generate an average of $40,000 per day in new sales.On average,they will pay in 68 days.The variable cost ratio is 80%,collection expenses are 2% of sales,and the cost of capital is 10%.What is the NPV of one day's sales if Emily grants credit? Assume that there is no bad debt loss.

• A)$4,226.81
• B)$5,190.78
• C)$6,483.06
• D)$7,200.00

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Definitions:

Economic Gains

Economic gains refer to the increase in economic benefit, usually measured in terms of profit, productivity, or market share, achieved through various economic activities.

Economic Losses

Financial deficits that occur when expenses exceed revenues, or due to lost opportunities, inefficiencies, or unexpected market changes.

Chronic Budget Deficits

A fiscal situation where a government consistently spends more than it receives in revenue over a long period, leading to accumulating debt.

Spending Priorities

The allocation decisions made by an individual, organization, or government regarding where to allocate available financial resources among various competing needs or interests.