1. McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 21 Credit and Inventory Management - Appendix Appendix

2. 21 (Appenix) -1 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. 21 (Appenix) -2 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. McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. End of Chapter Appendi x