Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. can someone please give details on how you solved

Can someone please give details on how you solved them please! Your firm just received an order...

70.2K

Verified Solution

Question

Finance

Can someone please give details on how you solved themplease!

Your firm just received an order from a customer for $50,000 ofwidgets. You have been tasked with evaluating the effect of timevalue of money on your firm’s cash flows (on atransaction-by-transaction basis). To fulfill this order your firmwill need to produce and transport the widgets. This will take 50days. Assume that the widgets will cost $30,000 in COGS; your firmis given 20 days to pay for the raw materials. Once the widgets aredelivered to your customer, 40 days of trade credit will beprovided to the customer. Assume a discount rate of 7%.

a. With the aforementioned assumptions, what is the NPV of thistransaction?

b. Recalculate the NPV, assuming that your firm reduced the timeneeded to produce and transport the widgets to 35 days.

c. Next, treat the difference in NPV (NPV from part b minus NPVfrom part a) as a daily perpetuity and determine the total increasein firm value attributable to the improvement in inventorymanagement.

Answer & Explanation Solved by verified expert
4.5 Ratings (632 Votes)
Answer a First Payment is made at 20th day hence there will be a cashflow of 30000 Payment is received at 504090th day hence there will be a cashflow of 50000 PV    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Indicate the sources of demand for loanable funds, and discuss the factors that affect the demand...

Finance
Q

The consumer demand equation for tissues is given by q = (100 − p)2, where p is the...

Basic Math
Q

Give an example of a graph G with p(G) = 7 and c(G) = 3.

Advance Math
Q

Red-green Color-blindness is sex-linked recessive. Two parents with normal colorvision have a color-blind child. Give...

Biology
Q

2 A pair of coils of turns n and n2 are kept close together Current...

Physics
Q

5 An analyst proposes a new method for analyzing blood alcohol As part of a...

Basic Math
Q

A certain substance has a half-life of 2 minutes. A fresh sample of the substance...

Basic Math
Q

Using the intermediate value theorem, determine, if possible, whether the function f has at least...

Basic Math
Q

Use the properties of limits to find the indicated limit x 2x 6 lim x...

Calculus
Q

Question 14: A stock is expected to pay a dividend of $1.5 and is currently...

Accounting
Q

Les Objets Volants (LOJ), S.A., of France, makes aircraft equipment. The company has been experiencing...

Accounting
Q

Reporting a Comprehensive Income Statement Required a. Prepare a single continuous statement of comprehensive income....

Accounting