We have the following information about the operations of Eden Company: Annual sales $78 million Variable cost ratio 65% Number of days sales outstanding 95 days Number of days in payables 35 days Inventory turnover ratio 3.21 Cost of capital 11%
(A) Find the NPV of its operating cycle. (B) What is the NPV if the payments can be delayed by 3 days, and collections accelerated by 3 days? (C) Calculate the increase in value of the firm due to this change in operations.
Please show all steps and formula's used.
The following answers were provided by the instructor as a self-check tool.
(A) $13.315 million, (B) $13.159 million, (C) V(A) = $234.982 million, V(B) = $235.623 million, increase $0.641 million