firm currently sells its product with a 2% discount to customers who pay by cash or credit card when they

purchase
Forty percent (40%) of customers take advantage of the discount.
The firm plans to drop the discount so the new terms will simply be net 30. In doing so it expects to sell 100 fewer units per m
The firm currently sells 1,000 units per month at a cost per unit of $42 and a selling price per unit of $80.
If the firm's required return is 3%, what is the net present value (NPV) of making this change?
(Assume that all 1,000 units are sold at the beginning of the month and the cost of producing the units is paid immediately.)

Old Scheme
Time in days 0 30
Select one: Sales 32000 48000
a. $-272493 Cost -42000
b. $-132493 Discount -640 0
c. $2336893 Net Cash Flow -10640 48000
d. $-30228 PV Factor 1 0.9975
PV of Cash Flow (10,640) 47,880
NPV 37,240

(3,220)
card when they purchase one of the firm's products; otherwise, the full price is due within 30 days.

o sell 100 fewer units per month and all customers to pay at day 30.

units is paid immediately.)

New Scheme Old Scheme New Scheme

0 30 Time in da 0 30 0 30
0 72000 Sales 32000 48000 0 72000
-37800 Cost -45000 -37800
0 0 Discount -640 0 0 0
-37800 72000 Net Cash F -13640 48000 -37800 72000
1 0.9975 PV Factor 1 0.9975 1 0.9975
(37,800) 71,820 PV of Cash (13,640) 47,880 (37,800) 71,820
34,020 NPV 34,240 34,020

(220)

10.77749
1. How many outstanding shares does the company
have?
2. What is the market value of the company?
3. What is the book value of the company?
4. What is the beta for the company?
5. How do you find the risk free rate?
6. (consider the market risk premium to be 8%)
7. Using CAPM to calculate the expected return on the
equity for the company.
8. (To get the required rate of return on debt, divide the
interest expense by total debt)
9. (To get the total debt, add the short term debt to long
term debt)
10. What is the Weighted average cost of capital
(WACC) for the company?
11. What is the leverage (total debt/equity ratio) for the
company?
Remarks / Calculation United States Steel (X)

157,000,000.00

1.33
Facebook (FB).

37.00
31.50
90.00
68.5

21.50

3.94

2240000

2614035.08772 842105 1964912 1491228