Microbiotics
Question
Microbiotics currently sells all of its frozen dinners cash on delivery but believes it can increase sales by
offering supermarkets 1 month of free credit. The price per carton is $90, and the cost per carton is $60. The unit sales will increase from 1,190 cartons to 1,250 per month if credit is granted. Assume all customers pay their bills and take full advantage of any credit period offered.
| a. | If the interest rate is 1% per month, what will be the change in the firm’s total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Change in total monthly profit $ |
| b. | If the interest rate is 1.5% per month, what will be the change in the firm’s total monthly profits on a present value basis if credit is offered to all customers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Change in total monthly profit $ |
| c. | Assume the interest rate is 1.5% per month but the firm can offer the credit only as a special deal to new customers, while existing customers will continue to pay cash on delivery. What will be the change in the firm’s total monthly profits on a present value basis under these conditions? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
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