Dickson City Company

Annual Sales
Cost of Goods Sold
Expected Increase in Sales
Factor of Increase in Sales
Collections:
Within 30 Days
Within 60 Days
Within 90 Days
Defaulting Customers
Cost of Capital
a)
NPVcash
NPVcredit
Yes, Dickson should introduce the policy of credit sales since the NPV credit is higher than the NPVcash

b)
Minimum Increase in Sales to Justify Introduction of New Credit Policy

$5
$3.2
25%
125%
20%
40%
37%
3%
12%

$1.80
$1.941

sh

15.92%

First National Bank of Jermyn

Number of Credit Card Accounts
Annual Fees per Card
Grace Period
Monthly Interest Rate
Number of Cardholders who Pay in Full
Average Monthly Bill
Average Balance who Pay on Installments
Operating Expenses
Cost of Capital
Mellon Bank's Offer

10,000
$25
25
1.25%
50%
$800
$1,200
$100,000
8%
$5

a
P
N
F
m
n
C
B
R
r
g
L

$0.00
$0.00
10,000
$25
5,000
5,000
$1,200
$800
15%
8%
25
$100,000

Supporting Calculations:

NPV

$250,000
-0.0052574352
-$252,356.89
$420,000
-$100,000
$317,643.11
$3,971

Days
15.00%
5,000

-0.0684931507

N
F
NF
r
V1
n
B
g
Amount of Monthly Loss per Card
V2
C
R
m
Annual Interest Generated
V3
L
V4
S
NS
a
12aNS
V5
P

Number of Cardholders
Annual Fees per Card
Total Fees
Cost of Capital
Value of Perpetuity (V1)
Number of Cardholders who Pay in Full
Av. Balance on the Above
Grace Period
Value of n (Free Riders)
Average Credit Balance
Annual Rate of Interest Charged on Credit Accounts
Number of Credit Cardholders
NPV of Paying Customers
Operating Expenses
NPV of Operating Expenses
Average Monthly Sales per Card
Monthly Sales on all Cards
Fraction of Sales Paid to Bank
Annual Sales Paid to Bank
NPV of Annual Sales Paid to Bank
Total Outstanding Balance on all Cards

10,000
$25
$250,000
8%
$3,125,000
5000
$800
25
-4.2059481947
-630.8922291996
$1,200
15.00%
5,000
$900,000
$5,250,000
$100,000
$1,250,000
$10,000,000
1%
$1,200,000
$15,000,000
$120,000,000
$7,124,369