The Corporation is considering a change in its cash-only policy. The new terms w

Question

The 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?

The 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?

Explanation / Answer

At breakeven ,profit under both policy will be equal.

Profit under current policy =Profit under new policy

4700 [ 88-48 ] = 4900[P-48]

188000 = 4900[P-48]

188000/4900 = P-48

P= 38.37+48

= $ 86.37

price = 86.37

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