Microbiotics currently sells all of its frozen dinners cash on delivery but beli
ID: 2700785 • Letter: M
Question
Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $50, and the cost per carton is $40. The unit sales will increase from 1,150 cartons to 1,210 per month.
If the interest rate is 1% per month, and all customers will pay their bills, calculate the present value of per carton. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
If the interest rate is 1.5% per month, and all customers will pay their bills, calculate the present value of per carton. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
If the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while old customers will continue to pay cash on delivery, calculate the present value of per carton. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by offering supermarkets 1 month of free credit. The price per carton is $50, and the cost per carton is $40. The unit sales will increase from 1,150 cartons to 1,210 per month.
Explanation / Answer
a.)PV=$50 - $40=$10
sales=$10*1150=$11500
PV per carton=$50/(1.01) -$40=$9.505 per carton
sales=1210*9.505=$$11501.05
Thus, Increase in sales due to extended credit covers for the time value cost of the credit extended
b.)PV per carton=$50/(1.015) -$40=$9.261 per carton
sales=1210*9.261=$11205.81
This is less than $11500
So higher sales are not sufficient for covering up the cost of the credit extended
c.)Profit margin=$9.261