The Harrington Corporation is considering a change in its cash-only policy. The
ID: 2643937 • Letter: T
Question
The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5 percent per period.
Current Policy
New Policy
Price per unit
$
104
$
108
Cost per unit
$
47
$
47
Unit sales per month
3,240
3,295
Calculate the NPV of the decision to change credit policies. (Do not round intermediate calculations.)
Problem 27-4 Float and Weighted Average Delay
Your neighbor goes to the post office once a month and picks up two checks, one for $11,000 and one for $3,400. The larger check takes four days to clear after it is deposited; the smaller one takes five days. Assume 30 days in a month.
a.
What is the total float for the month? (Do not round intermediate calculations.)
Total float
$
b.
What is the average daily float? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Average daily float
$
c-1.
What are the average daily receipts? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Average daily receipts
$
c-2.
What is the weighted average delay? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Weighted average delay
Current Policy
New Policy
Price per unit
$
104
$
108
Cost per unit
$
47
$
47
Unit sales per month
3,240
3,295
Explanation / Answer
The Harringtone Corporation NPV Calculation.
NPV for Current Policy = Cashflow/(1+Rate of Return) = 184680/1.025 = 180175.61
NPV of New Policy = Cashflow/(1+Rate of Return) = 200995/1.025 = 196092.68
From the above calculation Harrington Corp. change it's credit policy.
Problem 27-4 Float and Weighted Average Delay
=(Cheque 1 Clearing Time*Amt of chque1) + (Cheque 2 Clearing Time* Amt of cheque 2)
=(4*11000)+(5*3400)
= 61000 $
=Total Float/No of Days
= 61000/30
= 2033.33 $
=Amount of Both cheque/No of Days
= (11000+3400)/30
= 480.00 $
= {Clearing Time of Cheque1(Amount of cheque1/Total Amount of Receipts)} + {Clearing Time of Cheque2(Amount of cheque2/Total Amount of Receipts)}
= {4(11000/14400)} + {5(3400/14400)}
= 3.06+1.18
= 4.24
Current Policy New Policy Price 104 108 - Cost 47 47 Profit 57 61 * No Of Unit 3240 3295 Total Cashflow 184680 200995Related Questions
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