A seller is considering the effect on firm value fromtransitioning a long-time customer from cash terms to credit terms.For years, the customer has purchased 20 units every 60 days. Theseller believes that extending credit terms of net 60 days willencourage the customer to increase their purchase quantity to 25units. Each unit sells for $5 and the seller incurs immediatevariable costs of $3 per unit. The seller has an annual opportunitycost rate of 3.65%. Assuming that the customer just placed an orderon cash terms, what is the NPV of extending credit if salescontinue every 60 days in perpetuity?
Select one:
a. -$1,551.66
b. $1,551.66
c. $6,706.67
d. $8,258.33
A seller is considering the effect on firm value from transitioning a long-time customer from cash terms to credit terms
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answerhappygod
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