Microbiotics currently sells all of its frozen dinners cash on delivery but beli
ID: 2751296 • 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 $170, and the cost per carton is $100. The unit sales will increase from 1,120 cartons to 1,180 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.
If the interest rate is 1% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
If the interest rate is 1.5% per month, what will be the change in the firm's total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm's total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 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 $170, and the cost per carton is $100. The unit sales will increase from 1,120 cartons to 1,180 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.
Explanation / Answer
the price of carton 170 cost per carton -100 profit per carton 70 Sale units Profits Current 1120 78,400.00 (1120*70) New 1180 82,600.00 (1180*70) Increase 60 4,200.00 (60*70) PV factor for 1% 0.9901 interest amount 817.74 (82600*(1-.9901)) a) change in total monthly profit 3,382.26 (4200-817.74) b) PV at 1.5% 0.9852 1222.48 82600*(1-0.9852) change in total monthly profit 2,977.52 c) profit on old customer 67,200.00 (60*1120) PV at 1.5% 0.9852 interest on new customer 62.16 4200*(1-0.9852) change in total monthly profit 4,137.84