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Question 20.1: We’d Rather Fight Than Switch Suppose a company is conside...

We’d Rather Fight Than Switch

Suppose a company is considering a switch from all cash to net 30, but the quantity sold is not expected to change. What is the NPV of the switch? Explain.

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In this case,    Q^{'} -Q    is zero, so the NPV is just -PQ. What this says is that the effect of the switch is simply to postpone one month’s collections forever, with no benefit from doing so.

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