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Determine whether centara co should accept dynamic offer

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Centara Distributor, a wholesaler of paper products, has been approached by Dynamic Paper Products. Dynamic has offered Centara exclusive rights to distribute its products in the Western Visayas region. The contract runs for three years, after which time either company can terminate the arrangement. Centara's managers expect revenue from Dynamic's products to be about P300,000 per month, with variable costs about 85% of revenue. Incremental monthly fixed costs should run about P18,000. Additionally, Centara Co. must carry inventory approximating a two-month supply and must give its customers 90 days credit. Centara will pay on delivery of Dynamic's products. Cost of capital is 20%.

Required:

Problem 1: Determine whether Centara Co. should accept Dynamic's offer. Justify.

Reference no: EM132889439

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