Credit and Inventory Management - Appendix

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Presentation transcript:

Credit and Inventory Management - Appendix 21 Appendix Credit and Inventory Management - Appendix

Alternative Credit Policy Analysis 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

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) d = percent discount

Appendix End of Chapter