Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Question
Credit
screening.
Tennindo, Inc. is starting up its new, cost-efficient gaming system console, the yuu. Tennindo currently has
3,500
cash-paying customers and makes a profit of
$80
per unit. Tennindo wants to expand its customer base by allowing customers to buy on credit. It estimates that credit sales will bring in an additional
1,100
customers per year, but that there will also be a default rate on credit sales of
5%.
It costs
$230
to make a yuu, which retails for
$310.
Screendoor, Inc. is a credit-screening consulting firm. Screendoor advises Tennindo, Inc. that it can offer a credit-screening device that is
92%
accurate and costs
$5
per customer to apply. Determine whether Tennindo should use Screendoor's credit-screening system.
What is Tennindo's profit by adding credit sales for customers without using Screendoor's credit-screening system? (Round to the nearest dollar.)
What is Tennindo's profit by adding credit sales for customers with using Screendoor's credit-screening system? (Round to the nearest dollar.)
Should Tennindo use Screendoor's credit-screening system? (Select the best response.)
A. Yes, Tennindo should use Screendoor's system because the credit screening will increase the firm's profit.
B. No, Tennindo should not use Screendoor's system because the credit screening will decrease the firm's profit.
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