The Snedecker Corporation is considering a change in its cash-only policy. The n

Question

The Snedecker Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2 percent per period. Based on the following information, what is the break-even price per unit that should be charged under the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The Snedecker Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2 percent per period. Based on the following information, what is the break-even price per unit that should be charged under the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Current Policy New Policy   Price per unit $ 56 $ P   Cost per unit $ 32 $ 32   Unit sales per month 2,300 2,600 Current policy cash flow 55200 New Policy income 2600 P PV of new policy income 2600 P/1.02 Cash Flow of new policy (2600 P / 1.02) - 83200 Breakeven (2600 P/1.02 ) - 83200 = 55200 Breakeven 2600 P = (55200 + 83200)*1.02 P = $54.30

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