Until recently, Augean Cleaning Products sold its products on terms of net 61, with an average collection period of 76 days. In an attempt to induce customers to pay more promptly, it has changed its terms to 1/10, EOM, net 61. Assume current sales of $100, costs of $81, an interest rate of 13%, and no defaults. Assume each month has 30 days and a year has 360 days. The initial effect of the changed terms is as follows:
|Average Collection Periods (Days)|
|Percent of Sales with Cash Discount||Cash Discount||Net|
aSome customers deduct the cash discount even though they pay after the specified date.
a. Calculate the NPV per $100 of sales based on the original terms. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Net present value $
b. Assume that sales volume is unchanged and there are no defaults. Calculate the NPV per $100 of sales based on the revised terms. (Assume all sales occur in the middle of the month. Do not round intermediate calculations. Round your answer to 2 decimal places.)
Net present value $. Get Finance homework help today
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