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.
Chapter 20
Q. 20.1
Step-by-Step
Verified Solution
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.