You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $10 per unit; the selling price is $14. This customer wants to buy 100 units today and pay in 60 days. You think there is a 10% chance of default. The required return is 3% per 60 days. Should you extend credit? Assume this is a one-time sale and the customer will not buy if credit is not extended.
You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $10 per unit; the selling price is $14. This customer wants to buy 100 units today and pay in 60 days. You think there is a 10% chance of default. The required return is 3% per 60 days. Should you extend credit? Assume this is a one-time sale and the customer will not buy if credit is not extended.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $10 per unit; the selling price is $14. This customer wants to buy 100 units today and pay in 60 days. You think there is a 10% chance of default. The required return is 3% per 60 days. Should you extend credit? Assume this is a one-time sale and the customer will not buy if credit is not extended.
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