Can someone please give details on how you solved themplease!
Your firm just received an order from a customer for $50,000 ofwidgets. You have been tasked with evaluating the effect of timevalue of money on your firm’s cash flows (on atransaction-by-transaction basis). To fulfill this order your firmwill need to produce and transport the widgets. This will take 50days. Assume that the widgets will cost $30,000 in COGS; your firmis given 20 days to pay for the raw materials. Once the widgets aredelivered to your customer, 40 days of trade credit will beprovided to the customer. Assume a discount rate of 7%.
a. With the aforementioned assumptions, what is the NPV of thistransaction?
b. Recalculate the NPV, assuming that your firm reduced the timeneeded to produce and transport the widgets to 35 days.
c. Next, treat the difference in NPV (NPV from part b minus NPVfrom part a) as a daily perpetuity and determine the total increasein firm value attributable to the improvement in inventorymanagement.
