Extend credit to a group of new customers

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Reference no: EM132234956

Firm Z is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $90,000 per day in new sales. On average, they will pay in 30 days. The variable cost ratio (i.e., COGS) is 80% of sales, collection expenses are 5% of sales, and the discount rate is 8%. Assume that the variable cost occur upfront while collection cost occur on the date in which the customer's payment is received. What is the NPV of one day's sales if Firm C grants credit. Assume there is no bad debt loss.

Reference no: EM132234956

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