Crisps has received an order for 15500 bags of potato chips from BigBag. Crisps

Question

Crisps has received an order for 15500 bags of potato chips from BigBag. Crisps views BigBag to be a long-term customer and believes they will continue to place the same order year after year forever. Crisps sells its large bags of potato chips for $1.85 each, and calculates its internal cost for the product at $1.35 each.

Market research estimates that there is a 30% chance that BigBag will pay in full what it owes. Crisps uses a discount rate of 6.65% for all NPV analysis.

Based on this information, calculate the NPV of this credit decision?
$

Place your answer to the nearest dollar. Do not use a Dollar sign or commas within your answer.

Explanation / Answer

Received Credit Order of Potato Chips bags = 15500*0.70(100-30%)

=10850 bags

Profit of the one bag =1.85-1.35

=0.50 Per bag

Total Proofit =10850*0.50

  

Net Present Value = 61501.50

Note

Cash Flow Forever = Cash Flow/Discounted Rate

=5425/0.0665

= 81579

Particulars Year Cash Flow PVF @ 6.65% DCF CashInflow 0 20072.50(10850*1.85) 1 -20072.50 Cash Inflow 1 5425 0.9376 5086 Cash Inflow Forever 1 81579 ( Note 1) 0.9376 76488

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