Les Muebles Martineau Is Considering a Credit Application from Modulaire

Multiple Choice

Les Muebles Martineau is considering a credit application from Modulaire Ltee, a well established retailer whose $456,250 worth of purchases from Martineau are expected to provide Martineau with annual EBIT of $56,600 for three years. Modulaire Ltee spreads its orders evenly and would like to be invoiced quarterly with 30 days to pay, resulting in a payment period of 120 days. Martineau has a cost of capital of 9%, and views credit as a capital investment. Factoring in the credit terms, what should be done with Modulaire's application?

A) Turn it down as the result is a net annual loss of $94,000.
B) Approve it as the result is a net annual gain of $10,260.
C) Turn it down as the NPV is ($6,728) .
D) Approve it as the sales will provide an IRR of 12.4%.
E) Approve it as the NPV is $87,272.