The Harrington Corporation is considering a change in its cash-only policy. The

Question

The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.0 percent per period.

What is the break-even quantity for the new credit policy? (Round your answer to 2 decimal places. (e.g., 32.16))

10. 1000 points value: 10.00 points The Harrington Corporation is considering a change in its cash-only policy. The newterms would be net one period. The required return is 2.0 percent per period. Current Policy New Policy Price per unit Cost per unit Unit sales per month $ 53 $ 31 2,150 $ 55 $ 31 What is the break-even quantity for the new credit policy? (Round your answer to 2 decimal places. (e.g., 32.16) Break-even quantity

Explanation / Answer

At Break Even Point NPV should be Zero

Now putting values in NPV Equation

NPV = 0 = –[($53)*(2150) + ($31)*(Q – 2150)] + [(Q)*($55 – 31) – (2150)*($53 – 31)]/.02

0 = –$113950 – $31Q + $66650 + $1200Q – $2365000

$ 1169 Q = $2365000 + $113950 - $66650

$ 1169 Q = $2412300

Q = 2412300/1169

       Q= 2063.558 = 2064 Units

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