1. Credit and Inventory Management - Appendix21
Appendix
Credit and Inventory Management - Appendix

2. 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

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)
d = percent discount

4. Appendix
End of Chapter