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69) Currently, Tanner's sells 69 units a month at an average price of $499 a unit. The company
thinks it can increase sales by an additional 32 units a month if it switches to a net 30 credit
policy. The monthly interest rate is .48 percent and the variable cost per unit is $216. What is the
incremental cash inflow of the proposed credit policy switch?
A) $10,120
B) $9,056
C) $12,760
D) $17,810
E) $15,968
70) New Products currently sells a product with a variable cost per unit of $23 and a unit selling
price of $49. At the present time, the firm only sells on a cash basis with monthly sales of 733
units. The monthly interest rate is .48 percent. What is the value of Q' at the switch break-even
point if the firm adopted a net 30 credit policy? Assume the selling price per unit and the variable
costs per unit remain constant.
A) 739.66 units
B) 736.34 units
C) 728.47 units
D) 740.29 units
E) 743.18 units
71) Quest is considering a change in its cash-only sales policy. The new terms of sale would be
net one month. The required return is .98 percent per month. Currently, the firm sells 420 units
per month at $736 per unit. Under the new policy, the firm expects sales of 475 units also at
$736 per unit. The variable cost per unit is $426. What is the NPV of switching?
A) $1,228,750
B) $1,407,246
C) $1,335,021
D) $1,238,250
E) $1,056,784
72) Saucier Co. currently sells 1,208 units a month for total monthly sales of $209,600. The firm
is considering replacing its current cash only credit policy with a net 30 policy. The variable cost
per unit is $106 and the monthly interest rate is .71 percent. What is the new sales quantity at the
switch break-even level of sales? Assume the selling price per unit and the variable costs per unit
remain constant.
A) 1,143 units
B) 1,267 units
C) 1,230 units
D) 1,306 units
E) 1,148 units
73) The Cellar Door currently sells 1,849 units a month for total monthly sales of $627,800. The
company is considering replacing its current cash only credit policy with a net 30 policy. The
variable cost per unit is $214 and the monthly interest rate is .87 percent. What is the new sales
quantity at the switch break-even level of sales?
A) 1,711 units
B) 1,779 units
C) 1,814 units
D) 1,957 units
E) 1,893 units
74) The Dilana Corporation is considering a change in its cash-only policy. The new terms
would be net one period. The required return is 1.5 percent per period. The firm has current sales
of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales
to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the
incremental cash inflow of the new policy?
A) $1,880
B) $1,420
C) $1,500
D) $1,995
E) $1,650
75) A new customer has placed an order for a turbine engine that has a variable cost of $1.12
million per unit and a credit sales price of $1.64 million. Credit is extended for one period. Based
on historical experience, payment for about 1 out of every 178 such orders is never collected.
The required return is 2.1 percent per period. What is the NPV per unit if this is a one-time
order?
A) $516,407
B) $421,819
C) $477,244
D) $534,290
E) $351,056
76) You can make a one-time sale if you will grant a new customer 30 days to pay. This
customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You
estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should
you grant credit to this customer? Why or why not?
A) Yes; because the NPV of the potential sale is $33.05
B) Yes; because the NPV of the potential sale is $44.09
C) Yes; because the NPV of the potential sale is $13.02
D) No; because the NPV of the potential sale is −$13.05
E) No; because the NPV of the potential sale is −$2.65
77) The Cycle Shoppe has decided to offer credit to its customers during the spring selling
season. Sales are expected to be 64 bikes with an average cost of $329 each. Four percent of
customers are expected to default. To help identify those individuals, the shop is considering
subscribing to a credit agency. The initial charge for their services is $250 with an additional
charge of $7.50 per individual report. What is the amount of the net savings from subscribing to
the credit agency?
A) $108
B) $92
C) $84
D) $112
E) $103
78) Assume all sales are one-time credit sales with a probability of collection of 96 percent. The
variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is
1.35 percent. What is the NPV of a credit sale of one item?
A) $3.18
B) $2.87
C) $3.38
D) $2.92
E) $3.06
79) Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of
3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new
repeat customer who never defaults on his or her payment?
A) $5,733
B) $3,364
C) $2,617
D) $8,817
E) $9,520
80) Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly
interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit
for 30 days to all who are expected to become repeat customers?
A) $17,984
B) $19,787
C) $12,304
D) $18,662
E) $13,609
81) Lakeside Market sells 848 units of an item priced at $49 each year. The carrying cost per unit
is $2.26 and the fixed costs per order are $46. What is the economic order quantity?
A) 192 units
B) 221 units
C) 197 units
D) 186 units
E) 163 units
82) High Mountain consistently sells 2,400 pairs of $189 skates annually. The fixed order costs
is $56 and the carrying costs are $3.85 a pair. What is the economic order quantity?
A) 246 pairs
B) 215 pairs
C) 229 pairs
D) 264 pairs
E) 248 pairs
83) One of the best-selling items the Corner Store offers sells for $3.99 a unit with a variable
cost per unit of $2.88. The carrying cost per unit is $1.07 and the fixed order cost is $42. What is
the economic order quantity assuming the store sells 650 units annually?
A) 202 units
B) 194 units
C) 226 units
D) 214 units
E) 221 units
84) Cohen Industrial Products uses 3,600 switch assemblies per week and then reorders another
3,600 units. The annual carrying cost per switch assembly is $9.74, and the fixed order cost is
$78. What is the EOQ?
A) 1,980 units
B) 1,809 units
C) 1,732 units
D) 2,278 units
E) 1,698 units
85) The Electronics Store begins each week with 60 gadgets in stock. This stock is depleted and
reordered weekly. The carrying cost per gadget is $21 per year and the fixed order cost is $45.
What is the optimal number of orders that should be placed each year?
A) 19
B) 27
C) 23
D) 15
E) 33
86) Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per
unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the
economic order quantity?
A) 65 units
B) 58 units
C) 72 units
D) 53 units
E) 84 units
87) Weisbrough United currently sells 410 units a month at a price of $249 a unit. The variable
cost per unit is $132 and the carrying cost per unit is $3.30. The monthly interest rate is 1.2
percent. The firm believes it can increase its sales to 475 units a month if it switches from its
cash only to a net 30 credit policy. What is the present value of the switch using the one-shot
approach?
A) $455,590
B) $523,080
C) $498,470
D) $502,233
E) $464,902
88) Under its current cash sales only policy, JJ's sells 186 units a month at a price of $330 each.
The variable cost per unit is $155 and the monthly interest rate is 1.3 percent. The firm believes
it can sell an additional 25 units per month if it offers a net 30 credit policy. What is the present
value of the switch using the one-shot approach?
A) $312,806
B) $291,543
C) $271,283
D) $288,946
E) $311,118
89) Under its current cash sales only policy Willard's Co. sells 176 units a month for a total sales
value of $11,848. The variable cost per unit is $33 and the monthly interest rate is 1.1 percent.
The firm should sell an additional 25 units per month if it offers a net 30 credit policy. What is
the present value of the proposed switch using the accounts receivable approach?
A) $55,976
B) $65,323
C) $69,081
D) $70,224
E) $73,566
90) You are currently selling 48 units a month at a price of $199 a unit. Your variable cost of
each unit is $87. If you switch from your current cash sales only policy to a net 30 policy you
think your sales will increase to a total of 55 units per month. The monthly interest rate is 1.2
percent. What is the present value of this switch using the accounts receivable approach?
A) $55,172
B) $64,829
C) $80,822
D) $76,516
E) $41,520
91) CJ Stores has current cash-only sales of 218 units per month at a price of $236.55 a unit. If it
switches to a net 30 credit policy, the credit sales price will be $249 while the cash price will
remain at $236.55. The switch is not expected to affect the sales quantity but a 3 percent default
rate is expected. The monthly interest rate is 1.4 percent. What is the net present value of the
proposed credit policy switch?
A) $24,727
B) $26,893
C) $27,965
D) $25,978
E) $29,481
92) Sawyer's currently sells 70 units per month at a price of $412.50 a unit. The firm is
considering switching to a 30 day credit policy with a credit sales price of $429.69 a unit and a
cash price of $412.50. The monthly interest rate is 1.17 percent. What is the break-even default
rate of the proposed switch?
A) 2.88 percent
B) 3.68 percent
C) 3.19 percent
D) 2.71 percent
E) 3.06 percent
