Business, 10.05.2021 16:40 squawk1738

Until recently, Augean Cleaning Products sold its products on terms of net 59, with an average collection period of 74 days. In an attempt to induce customers to pay more promptly, it has changed its terms to 3/10, EOM, net 59. Assume current sales of $100, costs of $79, an interest rate of 13%, and no defaults. Assume each month has 30 days and a year has 360 days. The initial effect of the changed terms is as follows: Average Collection Periods (Days)

Percent of Sales with Cash Discount Cash Discount Net
60 30a 80

Some customers deduct the cash discount even though they pay after the specified date.

Required:
a. Calculate the NPV per $100 of sales based on the original terms.
b. Assume that sales volume is unchanged and there are no defaults. Calculate the NPV per $100 of sales based on the revised terms.

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