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Tricia Velasquez wishes to apply NPV analysis to a newly received order.

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Tricia Velasquez wishes to apply NPV analysis to a newly received order. The company's credit terms are net 45 days. Its opportunity cost of funds is 12 percent. The order dollar amount is $30,000. She finds out from cost accounting department that variable costs are approximately 65 percent of sales and that incremental credit administration and collection expenses approach 1 percent of sales.;a. Assuming that the customer will pay according to the credit terms, with perfect certainty, should Tricia approve the order?;b. Assume that further research indicates that payment probabilities and timing for accounts similar to the credit applicant are as follows;Payment timing: probability;With 45 days.50;45-60 days.30;60-90 days.15;Over 90 days.05

 

Paper#29375 | Written in 18-Jul-2015

Price : $27
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