Crisps has received an order for 14500 bags of potato chips

Crisps has received an order for 14500 bags of potato chips from BigBag. Crisps views BigBag to be a long-term customer and believes they will continue to place the same order year after year forever. Crisps sells its large bags of potato chips for $2.45 each, and calculates its internal cost for the product at $0.85 each. Market research estimates hat there is a 35% chance that BigBag will pay in ful what it owes. Crisps uses a discount rate of LOS% for at NPV analysis. Based on this information, calculate the NPV of this credit decision? Place your answer to the nearest dollar. Do not use a Dollar sign or commas within your answer

Solution

$ 102.55 Working : Sellig price per bag 2.45 Number of bags ordered 14500 Total sales value 35525 Probability of full payment 35% Probable sale value 12433.75 (35,525 x 35%) Cost per bag 0.85 Cost for 14,500 bags 12325 Net cash flow 108.75 (12,433.75 - 12,325) Discount rate 6.05% NPV (108.75 / (1+6.05%) 102.546