CURRENT SITUATION FOR DYL PICKLE COMPANY:
So = Current sales = $15 million.
V = Variable costs as a % of sales = 70% = 0.7.
1 - V = Contribution margin = 30% = 0.3.
k = Cost of capital invested in receivables = 15% = 0.15.
ACPo = Average collection period = 30 days. (Note: the credit period is 25 days, i.e., net 25.)
Bo = Bad debt loss percentage = 3% = 0.03.
Do = Discount percentage = 0%.
DYL Homework:
Toughen up on collection policy. New ACP will be 25 days. DS = -$1 million. Bo will go from 3% to 1%.
1. What is the change in Investment? (Enter your answer as a whole number)
2. What is the change in profits? (Enter your answer as a whole number)
3. What is the NPV of the proposed change? (Enter your answer as a whole number)
4. Should the change be made?