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The Dilana Corporation is considering a change in its cash-only policy. The new terms would be...

The Dilana Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. The firm has current sales of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the incremental cash inflow of the new policy?

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Expert Solution

Solution:

The values provided in the question are as follows:

Required rate of return per period = 1.5 % or 0.015

Cost per unit same in both Current Policy as well as New Policy = $ 38

Current Policy

Price per Unit = $71

Current sales per month = 3500 units

New Policy

Price per Unit = $71

  New Policy sales per month = 3550 units

, Incremental cash inflow of new policy =?

We know that If we are going to sale . $ will come i.e it is known as cash inflow. Incremental cash inflow means difference between inflow of Current Policy and New Policy .

Using the values provided in the question,

Cash inflow from Current Policy = ( Price per Unit - Cost per unit ) * Current sales per month

Cash inflow from Current Policy = ( $71 - $38 ) *3500

Cash inflow from Current Policy = $ 33 *3500

Cash inflow from Current Policy = $ 115,500

Cash flow from New Policy =( Price per Unit - Cost per unit ) * New Policy sales per month

Cash flow from New Policy =( $71 - $38 ) *3550

Cash flow from New Policy = $ 33 *3550

Cash flow from New Policy = $ 117,150

Incremental cash flow = $ 117,150 - $ 115,500

Incremental cash flow = $ 1650

Hence, Incremental cash inflow is $1650

jeff jeffy answered 9 hours ago
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