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Credit and Inventory Management - Appendix

21. Appendix. Credit and Inventory Management - Appendix. One-Shot Approach Determine if you would be better off with the cash (with lower sales) this month or the cash (with higher sales) next month Find the NPV of the investment as a one-shot deal

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Credit and Inventory Management - Appendix

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  1. 21 Appendix Credit and Inventory Management - Appendix

  2. One-Shot Approach Determine if you would be better off with the cash (with lower sales) this month or the cash (with higher sales) next month Find the NPV of the investment as a one-shot deal Then determine the PV if this is repeated each month indefinitely Accounts Receivable Approach Incremental investment in receivables = PQ + v(Q´ – Q) Carrying cost = [PQ + v(Q´ - Q)]R Compute present value of monthly benefit Alternative Credit Policy Analysis

  3. Discounts and Default • Cash discounts and default affect the benefits received • Net incremental cash flow = P´Q(d - ) • NPV = -PQ + P´Q(d - )/R • Break-even Point •  = d – R(1 – d)

  4. Appendix End of Chapter

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