Firm XYZ’s Decision

Firm XYZ’s Decision - Firm XYZs Decision...

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Firm XYZ’s Decision 1 We now com pare the previ ous resul ts to the 0 30 40 70 Days $65,000 $100,000 Raw Materials Purchased Goods Produced; Pay For Materials Product Sold Sales Proceeds Received 0 30 40 100 Days $66,950 $103,000 Raw Materials Purchased Goods Produced; Pay For Materials Product Sold Sales Proceeds Received $103,000 х 65% $100,000 х 1.03 Net 30: Net 60: Payment Terms (DSO) FV 1 + ( i х n ) PV =
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Firm XYZ’s Decision 2 We now com pute the cash flow effec t from 0 30 40 100 Days $66,950 $103,000 Raw Materials Purchased Goods Produced; Pay For Materials Product Sold Sales Proceeds Received $103,000 $66,950 1 + (.10 х 100 / 365 ) х 30 / ) PV = $100,253.33 $66,404.21 -$66,404.21 $33,849.12 Daily NPV = Inflows Outflows FV 1 + ( i х n )
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$103,000 $66,950 1 + (.10 х 100 / 365 ) х 30 / ) PV = $100,253.33 $66,404.21 -$66,404.21 $33,849.12 Daily NPV = Inflows Outflows Firm XYZ’s Decision 3 CF i (.10/ 365) 0.000273973 PV Perp = $123,549,288.00 PV = PV = PV = FV 1 + ( i х n ) Again, the calculated daily NPV is converted to the aggregate NPV since it is assumed that the daily NPV would persist indefinitely.
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Firm XYZ’s Decision 4 Choose the project with the highest NPV: $123,549,288 > $122,815,821 $123,549,288 - $122,815,821 > 0 Changing the terms [permanently]
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Firm XYZ’s Decision - Firm XYZs Decision...

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