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1) Crisps has received an order for 11500 bags of potato chips from BigBag. Crisps views BigBag to be a one-time customer. Crisps sells its large bags of potato chips for $1.95 each, and calculates its internal cost for the product at $0.85 each.

Market research estimates that there is a 25% chance that BigBag will pay in full what it owes. Based on this information, what is the NPV to Crisps of offering credit to BigBag? $ ___________

Place your answer to the nearest dollar. Do not include a dollar sign or comma.

2) Crisps has received an order for 12500 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 $1.80 each, and calculates its internal cost for the product at $0.95 each.

Market research estimates that there is a 35% chance that BigBag will pay in full what it owes. Crisps uses a discount rate of 6.25% for all 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.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92759564

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