Microbiotics currently sells all of its frozen dinners cash on delivery but beli
ID: 2773043 • 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 $60, and the cost per carton is $45. The unit sales will increase from 1,160 cartons to 1,220 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.)
a.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.)
Explanation / Answer
price 60 cost 45 units sold if on cash basis 1160 units sold if on credit basis 1220 1 ) 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.) Profit on cash basis 1160* (60-45) 17400 Profit on credit basis 1220*(60-45) 18300 Discounting factor 0.99009901 PV of profit on credit basis 18300*.99009901 18118.81 Change in profit 18118.81-17400 718.81 2) 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.) Profit on cash basis 17400 Profit on credit basis 18300 Discounting factor 1/1.05 0.952380952 PV oof profit on credit basis 18300*.952380952 17428.57143 Change in profit 17428.57-17400 28.57142857 3) 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.) Profit on cash basis 17400 Units sold to new customers 1220-1160 60 Extra profit earned 60* (60-45) 900 PV of extra profit earned 900*0.952380952 857.14 Total profit earned 17400+857.14 18257.14286