Happy Times currently has an all-cash credit policy. It is considering making a

Question

Happy Times currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. Based on the following information, what is the break-even price per unit under the new credit policy? The required return is 0.84 percent per month. (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

Happy Times currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. Based on the following information, what is the break-even price per unit under the new credit policy? The required return is 0.84 percent per month. (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

12. 10,00 points value: Happy Times currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. Based on the following information, what is the break-even price per unit under the new credit policy? The required return is 0.84 percent per month. (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Current Policy $ 215 $ 161 1,560 New Policy Price per unit Cost per unit Unit sales per month $166 1,610 Break-even price

Explanation / Answer

Cost of new policy = [PQ + Q (v - v) + v (Q - Q)]

Cost of new policy = (215*1560 + 1560* (166- 161) + 166* (1610-1560))

Cost of new policy = 351500

For Break Even

Incremental Cash Flow = Cost of new policy * required return

Incremental Cash Flow = 351500*0.84%

Incremental Cash Flow = $ 2952.60

Incremental Cash Flow = (P'-v')*Q' - (P-V)*Q

(Break Even Price - 166)*1610 - (215-161)*1560 = 2952.60

Break Even Price = (2952.60 + (215-161)*1560 )/ 1610 + 166

Break Even Price = $ 220.16

Answer

Break Even Price = $ 220.16

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