25)Sosin Inc. manufactures hydrogen engines. Recently 350 new orders placed by customers requesting credit. The variable...

25)Sosin Inc. manufactures hydrogen engines. Recently 350 new orders placed by customers requesting credit. The variable cost is $16,000 per unit, and the credit price is $18,400 each. Credit is extended for one period, and based on historical experience, payments for 15% of the orders are never collected. The required return is 3% per period. Suppose that customers who don’t default become repeat customers and they never default. Calculate the NPV?

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Expert Solution

Based on the given data, pls find below steps:

In this question, the credit period is important to determine the time value of the money as the sale happen in period 0 and the receipts of the sale get colllected in Period 1; However, the variable cost related cash outflow happen in Period 0; Also, the 15% of the total sales is mentioned as Bad debt - not collectible; Hence, the cash receipts shall only be 85% of the Total Sales; Based on this, the NPV is -285436.89 and not feasible.

jeff jeffy answered 1 year ago

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