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. 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? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. 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? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign. c. 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? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. a. Change in total monthly profit $ 2,172.28 × b. Change in total monthly profit $ 1,173.28 c. Change in total monthly profit $ 3,986.75 X
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. 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? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. 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? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated by a minus sign. c. 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? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Answer is complete but not entirely correct. a. Change in total monthly profit $ 2,172.28 × b. Change in total monthly profit $ 1,173.28 c. Change in total monthly profit $ 3,986.75 X
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 32P
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Question
Transcribed Image Text: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.
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?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
b. 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?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Negative amount should be indicated
by a minus sign.
c. 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?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Answer is complete but not entirely correct.
a. Change in total monthly profit
$
2,172.28 ×
b. Change in total monthly profit
$
1,173.28
c. Change in total monthly profit
$
3,986.75 X
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