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FINC620 - Davenport - Quiz 5 100% CORRECT SOLUTION

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Question;1.;Solar;Engines manufactures solar engines for tractor-trailers. Given the fuel;savings available, new orders for 105 units have been made by customers;requesting credit. The variable cost is $8,400 per unit, and the credit price;is $10,250 each. Credit is extended for one period. The required return is;1.2 percent per period. If Solar Engines extends credit, it expects that 20;percent of the customers will be repeat customers and place the same order;every period forever, and the remaining customers will place one-time orders.;Calculate the NPV of;the decision to grant credit.(Do not round intermediate calculations and round your final;answer to 2 decimal places. (e.g., 32.16));2.;Tidwell, Inc., has weekly credit sales of;$18,500, and the average collection period is 52 days. The cost of production;is 75 percent of the selling price. What is the average accounts;receivable figure?(Do not round intermediate calculations and round your final answer;to 2 decimal places. (e.g., 32.16));3.;The;Harrington Corporation is considering a change in its cash-only policy. The;new terms would be net one period. The required return is 2.0 percent per;period.;Current Policy;New Policy;Price per;unit;$;62;$;64;Cost per;unit;$;34;$;34;Unit sales;per month;2,600;?;What is the break-even;quantity for the new credit policy?(Do not round intermediate calculations and round your final;answer to 2 decimal places. (e.g., 32.16));4.;Air Spares is a wholesaler that;stocks engine components and test equipment for the commercial aircraft;industry. A new customer has placed an order for eight high-bypass turbine;engines, which increase fuel economy. The variable cost is $1.7 million per;unit, and the credit price is $2.055 million each. Credit is extended for one;period, and based on historical experience, payment for about 1 out of every;125 such orders is never collected. The required return is 2.0 percent per;period.;a-1.;What is the NPV per engine;purchased on credit? (Enter your answer in dollars, not millions of;dollars, i.e. 1,234,567. Do not round intermediate calculations and round;your final answer to 2 decimal places. (e.g., 32.16));a-2.;Assuming that this is a one-time;order, should it be filled? The customer will not buy if credit is not;extended.;b.;What is the break-even probability;of default in part (a)? (Do not round intermediate calculations and;round your final answer to 2 decimal places. (e.g., 32.16));c-1.;Suppose that customers who don?t;default become repeat customers and place the same order every period forever.;Further assume that repeat customers never default. What is the NPV per;engine purchased on credit? (Enter your answer in dollars, not millions;of dollars, i.e. 1,234,567. Do not round intermediate calculations and round;your final answer to 2 decimal places. (e.g., 32.16));c-2.;Assuming the customer becomes a;repeat customer, what is the break-even probability of default?(Do not round;intermediate calculations and round your final answer to 2 decimal places.;(e.g., 32.16));5.;Bell;Tolls, Inc., has an average collection period of 58 days. Its average daily;investment in receivables is $91,100.;What is the;receivables turnover?(Use 365 days a year. Do not round intermediate calculations and;round your final answer to 4 decimal places. (e.g., 32.1616));What are annual credit sales?(Use 365 days a year. Do not round intermediate calculations;and round your final answer to 2 decimal places. (e.g., 32.16))

 

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